As filed with the Securities and Exchange Commission on January 27, 2017
File No. 333-08045
File No. 811-07705
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
Under the SECURITIES ACT OF 1933
| Pre-Effective Amendment No. | ¨ | |||
| Post-Effective Amendment No. 20 | x |
and/or
REGISTRATION STATEMENT
|
Under the INVESTMENT COMPANY ACT OF 1940 |
¨ | |||
| Amendment No. 22 | x |
(Check appropriate box or boxes)
Virtus Asset Trust
(Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (800) 243-1574
101 Munson Street
Greenfield, Massachusetts 01301
(Address of Principal Executive Offices)
Kevin J. Carr, Esq.
Counsel
Virtus Investment Partners, Inc.
100 Pearl St.
Hartford, Connecticut 06103
(Name and Address of Agent for Service)
Copies of All Correspondence to:
David C. Mahaffey, Esq.
Sullivan & Worcester LLP
1666 K Street, N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
| ¨ | immediately upon filing pursuant to paragraph (b) |
| ¨ | on pursuant to paragraph (b) of Rule 485 |
| ¨ | 60 days after filing pursuant to paragraph (a)(1) |
| ¨ | on or at such later date as the Commission shall order pursuant to paragraph (a)(2) |
| x | 75 days after filing pursuant to paragraph (a)(2) |
| ¨ | on _____________ pursuant to paragraph (a)(2) of Rule 485. |
If appropriate, check the following box:
| ¨ | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
This Post-Effective Amendment consists of the following:
| 1. | Facing Sheet of the Registration Statement |
| 2. | Virtus Asset Trust (the “Registrant”) prospectuses dated April , 2017, registering Class A Shares, Class C Shares, Class R Shares, Class I Shares, Class IS Shares and Class T Shares |
| 3. | Virtus Asset Trust Statement of Additional Information (“SAI”) dated April , 2017, registering Class A Shares, Class C Shares, Class R Shares, Class I Shares, Class IS Shares and Class T Shares |
| 4. | Part C |
| 5. | Signature Page |
This Post-Effective Amendment No. 20 is being filed for the purpose of registering Class A Shares, Class C Shares, Class R Shares, Class I Shares, Class IS Shares and Class T Shares of the Registrant’s prospectuses and SAI.
Prospectus
| TICKER SYMBOL BY CLASS | |||||
| FUND | A | C | I | IS | T |
| Value Funds | |||||
| Subadviser: Ceredex Value Advisors LLC | |||||
| Virtus Ceredex Large-Cap Value Equity Fund | SVIIX | SVIFX | STVTX | STVZX | |
| Virtus Ceredex Mid-Cap Value Equity Fund | SAMVX | SMVFX | SMVTX | SMVZX | |
| Virtus Ceredex Small-Cap Value Equity Fund | SASVX | STCEX | SCETX | ||
| Growth Funds | |||||
| Subadviser: Silvant Capital Management LLC | |||||
| Virtus Silvant Large-Cap Growth Stock Fund | STCIX | STCFX | STCAX | STCZX | |
| Virtus Silvant Small-Cap Growth Stock Fund | SCGIX | SSCFX | SSCTX | SCGZX | |
| Subadviser: Zevenbergen Capital Investments LLC | |||||
| Virtus Zevenbergen Innovative Growth Stock Fund | SAGAX | SCATX | |||
| International Fund | |||||
| Subadviser: WCM Investment Management | |||||
| Virtus WCM International Equity Fund | SCIIX | STITX | SCIZX | ||
| Allocation Strategies | |||||
| Virtus Conservative Allocation Strategy Fund | SVCAX | SCCLX | SCCTX | ||
| Virtus Growth Allocation Strategy Fund | [SGIAX] | [SGILX] | [CLVGX] | ||
| TRUST NAME | | | April __, 2017 |
| VIRTUS ASSET TRUST | | |
| Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. This prospectus contains important information that you should know before investing in Virtus mutual funds. Please read it carefully and retain it for future reference. | | |
Not FDIC Insured No Bank Guarantee May Lose Value |
| Virtus Mutual Funds |
Virtus Ceredex Large-Cap Value Equity Fund
Investment Objective
The fund has an investment objective of seeking to provide a high level of capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Ceredex Large-Cap Value Equity Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Ceredex Large Cap Value Equity Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class IS | Class T |
| Management Fees | 0.65% | 0.65% | 0.65% | 0.65% | 0.65% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | None | 0.25% |
| Other Expenses | 0.41% (b) | 0.21% (b) | 0.45% (b) | 0.21% (b) | 0.41% (c) |
| Total Annual Fund Operating Expenses | 1.31% | 1.86% | 1.10% | 0.86% | 1.31% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.07% | -0.14% | -0.13% | -0.14% | -0.07% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.24% | 1.72% | 0.97% | 0.72% | 1.24% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. | |
| (c) | Estimated for current fiscal year, as annualized. |
| 1 |
| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, ___% for Class C Shares, __% for Class I Shares, ___% for Class IS Shares and ___% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 694 | $ | 953 | $ | 1,239 | $ | 2,051 |
| Class C | Sold | $ | 275 | $ | 557 | $ | 979 | $ | 2,156 |
| Held | $ | 175 | $ | 557 | $ | 979 | $ | 2,156 | |
| Class I | Sold or Held | $ | 99 | $ | 323 | $ | 580 | $ | 1,316 |
| Class IS | Sold or Held | $ | 74 | $ | 246 | $ | 449 | $ | 1,034 |
| Class T | Sold or Held | $ | 373 | $ | 641 | $ | 937 | $ | 1,777 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of large-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers large-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 1000® Value Index. As of [December 31, 2016], the market capitalization range of companies in the Russell 1000® Value Index was approximately $[____] billion and above. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
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In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Sector Focused Investing Risk. The risk that events negatively affecting a particular market sector in which the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. To the extent the fund focuses its assets in a particular market sector, the fund is more vulnerable to conditions that negatively affect such market sector as compared to a fund that does not focus holdings in such securities. |
| · | Value Stocks Risk. The risk that the fund will underperform when value investing is out of favor or that the fund’s investments will not appreciate in value as anticipated. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(8/1/14) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Russell 1000 Value Index (reflects no deduction for mutual fund fees or expenses) |
The Russell 1000 Value Index is a market capitalization-weighted index of value-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total-return basis with dividends reinvested.
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Ceredex Value Advisors LLC (“Ceredex”).
Portfolio Management
Mills Riddick , CFA, Chief Investment Officer of Ceredex, has managed the fund since 1995.
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
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Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Ceredex Mid-Cap Value Equity Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Ceredex Mid-Cap Value Equity Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class IS | Class T |
| Management Fees | 0.69% | 0.69% | 0.69% | 0.69% | 0.69% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | None | 0.25% |
| Other Expenses | 0.43% (b) | 0.23% (b) | 0.38% (b) | 0.23% (b) | 0.43% (c) |
| Total Annual Fund Operating Expenses | 1.37% | 1.92% | 1.07% | 0.92% | 1.37% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | 0.00% | -0.12% | 0.00% | -0.12% | 0.00% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.37% | 1.80% | 1.07% | 0.80% | 1.37% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
| 7 |
| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, ___% for Class C Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 706 | $ | 984 | $ | 1,282 | $ | 2,127 |
| Class C | Sold | $ | 283 | $ | 579 | $ | 1,014 | $ | 2,223 |
| Held | $ | 183 | $ | 579 | $ | 1,014 | $ | 2,223 | |
| Class I | Sold or Held | $ | 109 | $ | 340 | $ | 590 | $ | 1,306 |
| Class IS | Sold or Held | $ | 82 | $ | 269 | $ | 485 | $ | 1,109 |
| Class T | Sold or Held | $ | 386 | $ | 673 | $ | 981 | $ | 1,855 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of mid-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers mid-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell Midcap® Index. As of [December 31, 2016], the market capitalization range of companies in the Russell Midcap® Index was between approximately $[____] billion and $[____]. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
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In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Medium Market Capitalization Risk. The risk that the fund's investments in medium market capitalization companies will increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Value Stocks Risk. The risk that the fund will underperform when value investing is out of favor or that the fund’s investments will not appreciate in value as anticipated. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
| 9 |
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(8/1/14) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Russell Midcap Value Index (reflects no deduction for mutual fund fees or expenses) |
The Russell Midcap® Value Index measures the performance of the mid-capitalization value segment of the U.S. equity universe. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index is a market capitalization-weighted index of medium-capitalization stocks of U.S. companies. The indexes are calculated on a total-return basis with dividends reinvested. The indexes are unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only
| 10 |
for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Ceredex Value Advisors LLC (“Ceredex”).
Portfolio Management
Don Wordell , CFA, Managing Director of Ceredex, has managed the fund since 2001.
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
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Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Ceredex Small-Cap Value Equity Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Ceredex Small Cap Value Equity Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.83% | 0.83% | 0.83% | 0.83% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | 0.25% |
| Other Expenses | 0.41% (b) | 0.21% (b) | 0.42% (b) | 0.41% (c) |
| Total Annual Fund Operating Expenses | 1.49% | 2.04% | 1.25% | 1.49% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | 0.00% | -0.13% | -0.01% | 0.00% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.49% | 1.91% | 1.24% | 1.49% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, ___% for Class C Shares, ___% for Class I Shares and ___% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 718 | $ | 1,019 | $ | 1,341 | $ | 2,252 |
| Class C | Sold | $ | 294 | $ | 614 | $ | 1,074 | $ | 2,348 |
| Held | $ | 194 | $ | 614 | $ | 1,074 | $ | 2,348 | |
| Class I | Sold or Held | $ | 126 | $ | 395 | $ | 684 | $ | 1,509 |
| Class T | Sold or Held | $ | 398 | $ | 709 | $ | 1,043 | $ | 1,985 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of small-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers small-capitalization companies to be companies with market capitalizations between $50 million and $3 billion or with market capitalizations similar to those of companies in the
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Russell 2000® Value Index. As of [______, 2017], the market capitalization range of companies in the Russell 2000® Value Index was between approximately $[___] million and $[___] billion.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Small Market Capitalization Companies Risk. The risk that the fund’s investments in small market capitalization companies may be less liquid and more vulnerable to adverse business or economic developments, which may increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
| · | Value Stocks Risk. The risk that the fund will underperform when value investing is out of favor or that the fund’s investments will not appreciate in value as anticipated. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class C | |||
| Return Before Taxes | |||
| Russell 2000 Value Index (reflects no deduction for mutual fund fees or expenses) |
The Russell 2000® Value Index is a market capitalization-weighted index of value-oriented stocks of the smallest 2,000 companies in the Russell universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total-return basis with dividends reinvested. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Ceredex Value Advisors LLC (“Ceredex”).
Portfolio Management
Brett Barner , CFA, Managing Director of Ceredex, has managed the fund since 1994.
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Silvant Large-Cap Growth Stock Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Silvant Large Cap Growth Stock Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00 (a) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class IS | Class T |
| Management Fees | 0.70% | 0.70% | 0.70% | 0.70% | 0.70% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | None | 0.25% |
| Other Expenses | 0.35% (b) | 0.31% (b) | 0.51% (b) | 0.31% (b) | 0.35% (c) |
| Total Annual Fund Operating Expenses | 1.30% | 2.01% | 1.21% | 1.01% | 1.30% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.07% | -0.11% | -0.24% | -0.11% | -0.07% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.23% | 1.90% | 0.97% | 0.90% | 1.23% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, ___% for Class C Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 693 | $ | 950 | $ | 1,234 | $ | 2,041 |
| Class C | Sold | $ | 293 | $ | 609 | $ | 1,062 | $ | 2,320 |
| Held | $ | 193 | $ | 609 | $ | 1,062 | $ | 2,320 | |
| Class I | Sold or Held | $ | 99 | $ | 335 | $ | 618 | $ | 1,422 |
| Class IS | Sold or Held | $ | 92 | $ | 299 | $ | 536 | $ | 1,216 |
| Class T | Sold or Held | $ | 372 | $ | 638 | $ | 932 | $ | 1,766 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other U.S.-traded equity securities of large-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers large-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 1000® Growth Index.
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As of [December 31, 2016], the market capitalization range of companies in the Russell 1000® Growth Index was between approximately $[_] billion and $[____] billion.
The subadviser will seek out securities it believes have strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes have above-average growth potential to beat expectations. The subadviser uses a “bottom-up” process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary benchmark. The subadviser then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The subadviser also applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency and sentiment or behavior factors.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
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Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(8/1/14) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Class IS | ||||
| Return Before Taxes | ||||
| Russell 1000 Growth Index (reflects no deduction for mutual fund fees or expenses) |
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The Russell 1000® Growth Index is a market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total-return basis with dividends reinvested. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Silvant Capital Management LLC (“Silvant”).
Portfolio Management
| · | Michael A. Sansoterra , Chief Investment Officer of Silvant, has co-managed the fund since 2007. |
| · | Sandeep Bhatia , PhD, CFA, Managing Director of Silvant, has co-managed the fund since 2011. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
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Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide long-term capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Silvant Small-Cap Growth Stock Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Silvant Small Cap Growth Stock Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00 (a) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class IS | Class T |
| Management Fees | 0.85% | 0.85% | 0.85% | 0.85% | 0.85% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | None | 0.25 % |
| Other Expenses | 0.33% (b) | 0.29% (b) | 0.49% (b) | 0.29% (b) | 0.33% (c) |
| Total Annual Fund Operating Expenses | 1.43% | 2.14% | 1.34% | 1.14% | 1.43% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.02% | -0.07% | -0.04% | -0.07% | -0.02% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.41% | 2.07% | 1.30% | 1.07% | 1.41% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, ___% for Class C Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 710 | $ | 998 | $ | 1,308 | $ | 2,186 |
| Class C | Sold | $ | 310 | $ | 656 | $ | 1,136 | $ | 2,461 |
| Held | $ | 210 | $ | 656 | $ | 1,136 | $ | 2,461 | |
| Class I | Sold or Held | $ | 132 | $ | 416 | $ | 726 | $ | 1,606 |
| Class IS | Sold or Held | $ | 109 | $ | 348 | $ | 614 | $ | 1,373 |
| Class T | Sold or Held | $ | 390 | $ | 687 | $ | 1,008 | $ | 1,917 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of small-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers small-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 2000® Growth Index. As of [December 31, 2016], the market capitalization range of companies in the Russell 2000® Growth Index was between approximately $[__] million and $[____] billion.
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In selecting investments for purchase and sale, the subadviser chooses companies that it believes have above-average growth potential to beat expectations as a result of strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends. The subadviser uses a “bottom-up” process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary benchmark. It then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The subadviser also applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency, and sentiment or behavior factors.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Sector Focused Investing Risk. The risk that events negatively affecting a particular market sector in which the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. To the extent the fund focuses its assets in a particular market sector, the fund is more vulnerable to conditions that negatively affect such market sector as compared to a fund that does not focus holdings in such securities. |
| · | Small Market Capitalization Companies Risk. The risk that the fund's investments in small market capitalization companies may be less liquid and more vulnerable to adverse business or economic developments, which may increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(8/1/14) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Class IS | ||||
| Return Before Taxes | ||||
| Russell 2000® Growth Index (reflects no deduction for mutual fund fees or expenses) |
The Russell 2000® Growth Index is a market capitalization-weighted index of growth-oriented stocks of the smallest 2,000 companies in the Russell universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total-return basis with dividends reinvested. The index is unmanaged and not available for direct investment.
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Silvant Capital Management LLC (“Silvant”).
Portfolio Management
| · | Michael A. Sansoterra , Chief Investment Officer of Silvant, has co-managed the fund since 2007. |
| · | Sandeep Bhatia , PhD, CFA, Managing Director of Silvant, has co-managed the fund since 2011. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
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In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide long-term capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Zevenbergen Innovative Growth Stock Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Innovative Growth Stock Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.85% | 0.85% | 0.85% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | None | 0.25% |
| Other Expenses | 0.32% (a) | 0.44% (a) | 0.32% (b) |
| Total Annual Fund Operating Expenses | 1.42% | 1.29% | 1.42% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | [ ]% | [ ]% | [ ]% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | [ ]% | [ ]% | [ ]% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
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Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 711 | $ | 999 | $ | 1,307 | $ | 2,179 |
| Class I | Sold or Held | $ | 131 | $ | 409 | $ | 708 | $ | 1,556 |
| Class T | Sold or Held | $ | 391 | $ | 688 | $ | 1,007 | $ | 1,909 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other U.S.-traded equity securities. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The fund may invest in companies of any size and may invest a portion of its assets in non-U.S. issued securities of foreign companies.
The fund invests primarily in common stocks of companies that exhibit strong growth characteristics. In selecting investments for purchase and sale, the subadviser uses a fundamental research approach to identify companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth “drivers” are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the fund’s investments. Generally the fund will hold a limited number of securities.
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Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitivchallenges, such as changes in technology and consumer tastes. |
| · | Limited Number of Investments Risk. The risk that the fund’s portfolio will be more susceptible to factors adversely affecting issuers of securities in the fund’s portfolio than would a fund holding a greater number of securities. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Small and Medium Market Capitalization Risk. The risk that the fund's investments in small and medium market capitalization companies will increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Russell 3000 Growth Index (reflects no deduction for mutual fund fees or expenses) |
The Russell 3000® Growth Index is a market capitalization-weighted index that measures the performance of the broad growth segment of the Russell universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total-return basis with dividends reinvested. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is [Zevenbergen Capital Investments LLC (“Zevenbergen”).]
Portfolio Management
| [ · | Nancy Zevenbergen , CFA, CIC, President and Chief Investment Officer of Zevenbergen, has co-managed the fund since 2004. |
| · | Brooke de Boutray , CFA, CIC, a Managing Director, Portfolio Manager and Analyst of Zevenbergen, has co-managed the fund since 2004. |
| · | Leslie Tubbs , CFA, CIC, a Managing Director, Portfolio Manager and Analyst of Zevenbergen, has co-managed the fund since 2004. |
| · | Joseph Dennison , CFA, an Assistant Portfolio Manager of Zevenbergen, has co-managed the fund since August 2015. |
| · | Anthony Zackery , CFA, an Assistant Portfolio Manager of Zevenbergen, has co-managed the fund since August 2015.] |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
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In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide long-term capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus WCM International Equity Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth International Equity Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class IS | Class T |
| Management Fees | 0.85% | 0.85% | 0.85% | 0.85% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | None | None | 0.25% |
| Other Expenses | 0.35% (a) | 0.40% (a) | 0.34% (a) | 0.35% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 1.46% | 1.26% | 1.20% | 1.46% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.03% | -0.04% | -0.09% | -0.03% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 1.43% | 1.22% | 1.11% | 1.43% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares, ___% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
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Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 712 | $ | 1,004 | $ | 1,321 | $ | 2,216 |
| Class I | Sold or Held | $ | 124 | $ | 392 | $ | 684 | $ | 1,515 |
| Class IS | Sold or Held | $ | 113 | $ | 363 | $ | 642 | $ | 1,438 |
| Class T | Sold or Held | $ | 392 | $ | 694 | $ | 1,022 | $ | 1,948 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other equity securities of foreign companies. These foreign companies may be located in emerging markets. The fund’s investments in equity securities may include common stocks, preferred stocks, and other convertible securities, such as warrants and depositary receipts.
The fund’s investments in depositary receipts may include American, European, Canadian and Global Depository Receipts (“ADRs”, “EDRs”, “CDRs” and “GDRs”, respectively). ADRs are receipts that represent interests in foreign securities held on deposit by U.S. banks. EDRs and GDRs have the same qualities as ADRs, except that they may be traded in various non-U.S. trading markets.
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In selecting investments for purchase and sale, the subadviser uses a bottom-up approach that seeks to identify companies with attractive fundamentals, such as long-term growth in revenue and earnings, and that show a strong probability for superior future growth. The subadviser’s investment process focuses on seeking companies that are industry leaders with sustainable competitive advantages; corporate cultures emphasizing strong, quality and experienced management; low or no debt; and attractive relative valuations. The subadviser also considers other factors including political risk, monetary policy risk, and regulatory risk in selecting securities.
Although the fund may invest in any size companies, it will generally invest in large-capitalization established multinational companies. The subadviser considers large-capitalization companies to be those with market capitalization of $3.5 billion or greater at the time of investment. The fund generally will invest in securities of companies located in different regions and in at least three different countries. However, from time to time, the fund may have a significant portion of its assets invested in the securities of companies in one or a few countries or regions.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Convertible Securities Risk. The risk that a convertible security held by the fund will be called for redemption at a time and/or price unfavorable to the fund. |
| · | Depositary Receipts Risk. The risk that investments in foreign companies through depositary receipts will expose the fund to the same risks as direct investment in securities of foreign issuers. |
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Geographic Concentration Risk. The risk that events negatively affecting the geographic location where the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Preferred Stock Risk. The risk that a preferred stock will decline in price, fail to pay dividends when expected, or be illiquid. |
| · | Sector Focused Investing Risk. The risk that events negatively affecting a particular market sector in which the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. To the extent the fund focuses its assets in a particular market sector, the fund is more vulnerable to conditions that negatively affect such market sector as compared to a fund that does not focus holdings in such securities. |
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Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(9/1/15) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A Shares | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Morgan Stanley MSCI ACWI Ex-U.S. Index (reflects no deduction for mutual fund fees or expenses) |
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The Morgan Stanley Capital International All Country World (“MSCI ACWI”) ex USA Index is a free float-adjusted market capitalization-weighted index that measures equity performance of developed and emerging markets other than the United States. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is WCM Investment Management (“WCM”).
Portfolio Management
| · | Paul R. Black , President and co-CEO of WCM, has co-managed the fund since September 2015. |
| · | Peter J. Hunkel , Portfolio Manager and Business Analyst of WCM, has co-managed the fund since September 2015. |
| · | Michael B. Trigg , Portfolio Manager and Business Analyst of WCM, has co-managed the fund since September 2015. |
| · | Kurt R. Winrich , Chairman and co-CEO of WCM, has co-managed the fund since September 2015. |
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Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide a high level of capital appreciation and current income.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Conservative Allocation Strategy Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Conservative Allocation Strategy, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.10% | 0.10% | 0.10% | 0.10% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | 0.25% |
| Other Expenses | 0.41% (b) | 0.30% (b) | 0.46% (b) | 0.41% (c) |
| Acquired Fund Fees and Expenses | 0.40% | 0.40% | 0.40% | 0.40% |
| Total Annual Fund Operating Expenses | 1.16% | 1.80% | 0.96% | 1.16% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.16% | -0.10% | -0.26% | -0.16% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.00% | 1.70% | 0.70% | 1.00% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 572 | $ | 795 | $ | 1,053 | $ | 1,789 |
| Class C | Sold | $ | 273 | $ | 546 | $ | 956 | $ | 2,099 |
| Held | $ | 173 | $ | 546 | $ | 956 | $ | 2,099 | |
| Class I | Sold or Held | $ | 72 | $ | 253 | $ | 479 | $ | 1,129 |
| Class T | Sold or Held | $ | 349 | $ | 578 | $ | 841 | $ | 1,595 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests pursuant to an asset allocation strategy in a combination of affiliated fixed income funds and exchange-traded funds (“ETFs”) that invest in bonds (together, “Underlying Fixed Income Funds”), and to a lesser extent, affiliated equity funds and ETFs that invest in equities (together, “Underlying Equity Funds” and, together with Underlying Fixed Income Funds, “Underlying Funds”). The fund invests between 50% and 80% of its assets in Underlying Fixed Income Funds, and between 20% and 40% of its assets in Underlying Equity Funds. The fund’s remaining assets may be invested in cash and cash equivalents, including unaffiliated money market funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper.
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The fund may invest in Underlying Funds that:
| · | invest in debt instruments, including mortgage- and asset-backed instruments, securities restricted as to resale, common stocks and other equity securities of U.S. and non-U.S. companies including those in both developed and emerging markets; |
| · | invest in bank loans and other below investment grade instruments; and |
| · | invest in inflation-protected public obligations of the U.S. Treasury (“TIPS”), which are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. |
In selecting a diversified portfolio of Underlying Funds, the adviser analyzes many factors, including the Underlying Funds’ investment objectives, total return, volatility and expenses.
The table that follows shows how the adviser currently expects to allocate the fund’s portfolio among asset classes. The table also shows the sectors within those asset classes to which the fund will currently have exposure.
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Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. In addition, you will also be subject to the risks associated with the principal investment strategies of any Underlying Funds in which the fund invests. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Affiliated Fund Risk. The risk that the adviser’s authority to select and substitute Underlying Funds from a variety of affiliated mutual funds may create a conflict of interest. |
| · | Allocation Risk. The risk that the fund’s exposure to equities and fixed income securities, or to different asset classes, may vary from the intended allocation or may not be optimal for market conditions at a given time. |
| · | Fund of Funds Risk. The risk that the fund’s performance will be adversely affected by the assets owned by the other mutual funds and ETFs in which it invests, and that the layering of expenses associated with the fund’s investment in such other funds will cost shareholders more than direct investments would have cost. |
The principal risks attributable to the Underlying Funds in which the fund invests are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, |
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options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield.
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Exchange-Traded Funds (ETFs) Risk. The risk that the value of an ETF will be more volatile than the underlying portfolio of securities the ETF is designed to track, or that the costs to the fund of owning shares of the ETF will exceed those the fund would incur by investing in such securities directly. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Inflation Protected Investing Risk. The risk that inflation-protected securities will react differently from other fixed income securities to changes in interest rates. The values of inflation-protected securities are anticipated to change in response to changes in “real” interest rates, which represent nominal (stated) interest rates reduced by the expected impact of inflation. Generally, the value of an inflation-protected security will fall when real interest rates rise and will rise when real interest rates fall. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
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| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Real Estate Investment Risk. The risk that the value of the fund’s shares will be negatively affected by factors specific to the real estate market, including interest rate risk, leverage risk, property risk and management risk. |
| · | Small and Medium Market Capitalization Risk. The risk that the fund's investments in small and medium market capitalization companies will increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
| · | Value Stocks Risk. The risk that the fund will underperform when value investing is out of favor or that the fund’s investments will not appreciate in value as anticipated. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of two broad-based
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securities market indexes and a composite benchmark. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class C | |||
| Return Before Taxes | |||
| Hybrid 30/70 Blend of the two Indices below (reflects no deduction for mutual fund fees or expenses) | |||
| S&P 500® Index (reflects no deduction for mutual fund fees or expenses) | |||
| Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for mutual fund fees or expenses) |
The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The
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Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The indexes are unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC (the “Adviser”).
Portfolio Management
Peter J. Batchelar , CFA, CAIA, Portfolio Manager for the Adviser and Vice President of Product Management for Virtus Investment Partners, has co-managed the fund since 2017.
Thomas P. Wagner , CFA, CAIA, Portfolio Manager for the Adviser and Vice President of Product Management for Virtus Investment Partners, has co-managed the fund since 2017.
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
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Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to provide long-term capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Growth Allocation Strategy Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Growth Allocation Strategy and RidgeWorth Moderate Allocation Strategy, each a series of RidgeWorth Funds (each a “Predecessor Fund” and together the “Predecessor Funds”), resulting from a reorganization of the Predecessor Funds with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 5.75% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.10% | 0.10% | 0.10% | 0.10% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | 0.25% |
| Other Expenses | 0.30% (b) | 0.26% (b) | 0.46% (b) | 0.30% (c) |
| Acquired Fund Fees and Expenses | 0.63% | 0.63% | 0.63% | 0.63% |
| Total Annual Fund Operating Expenses | 1.28% | 1.99% | 1.19% | 1.28% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.06% | -0.17% | -0.17% | -0.06% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 1.22% | 1.82% | 1.02% | 1.22% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund’s investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 692 | $ | 946 | $ | 1,226 | $ | 2,021 |
| Class C | Sold | $ | 285 | $ | 591 | $ | 1,040 | $ | 2,289 |
| Held | $ | 185 | $ | 591 | $ | 1,040 | $ | 2,289 | |
| Class I | Sold or Held | $ | 104 | $ | 343 | $ | 621 | $ | 1,412 |
| Class T | Sold or Held | $ | 371 | $ | 634 | $ | 923 | $ | 1,746 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests pursuant to an asset allocation strategy in a combination of affiliated equity funds and exchange-traded funds (“ETFs”) that invest in equities (together, “Underlying Equity Funds”), and, to a lesser extent, affiliated fixed income funds and ETFs that invest in bonds (together, “Underlying Fixed Income Funds” and, together with the Underlying Equity Funds, the “Underlying Funds”). The fund invests between 60% and 80% of its assets in Underlying Equity Funds and between 10% and 40% of its assets in Underlying Fixed Income Funds. The fund’s remaining assets may be invested in cash and cash equivalents, including unaffiliated money market funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper.
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The fund may invest in Underlying Funds that:
| · | invest in common stocks, other equity securities and debt instruments, including mortgage- and asset-backed instruments and securities restricted as to resale, of U.S. and non-U.S. companies. The Underlying Funds may invest in companies of any size and in both developed and emerging markets; |
| · | invest in bank loans and other below investment grade instruments; and |
| · | invest in inflation-protected public obligations of the U.S. Treasury (“TIPS”), which are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. |
In selecting a diversified portfolio of Underlying Funds, the adviser analyzes many factors, including the Underlying Funds’ investment objectives, total returns, volatility and expenses.
The table that follows shows how the adviser currently expects to allocate the fund’s portfolio among asset classes. The table also shows the sectors within those asset classes to which the fund will currently have exposure.
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Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. In addition, you will also be subject to the risks associated with the principal investment strategies of any Underlying Funds in which the fund invests. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Affiliated Fund Risk. The risk that the adviser’s authority to select and substitute Underlying Funds from a variety of affiliated mutual funds may create a conflict of interest. |
| · | Allocation Risk. The risk that the fund’s exposure to equities and fixed income securities, or to different asset classes, may vary from the intended allocation or may not be optimal for market conditions at a given time. |
| · | Fund of Funds Risk. The risk that the fund’s performance will be adversely affected by the assets owned by the other mutual funds and ETFs in which it invests, and that the layering of expenses associated with the fund’s investment in such other funds will cost shareholders more than direct investments would have cost. |
The principal risks attributable to the Underlying Funds in which the fund invests are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing |
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in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield.
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Equity Securities Risk. The risk that events negatively affecting issuers, industries or financial markets in which the fund invests will impact the value of the stocks held by the fund and, thus, the value of the fund’s shares over short or extended periods. Investments in a particular style or in small or medium-sized companies may enhance that risk. |
| · | Exchange-Traded Funds (ETFs) Risk. The risk that the value of an ETF will be more volatile than the underlying portfolio of securities the ETF is designed to track, or that the costs to the fund of owning shares of the ETF will exceed those the fund would incur by investing in such securities directly. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Growth Stocks Risk. The risk that the fund’s investments in growth stocks will be more volatile than investments in other types of stocks, or will perform differently from the market as a whole and from other types of stocks. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Industry/Sector Concentration Risk. The risk that events negatively affecting real estate securities will cause the value of the fund’s shares to decrease, perhaps significantly. Since the fund concentrates its assets in real estate related securities, the fund is more vulnerable to conditions that negatively affect real estate related securities as compared to a fund that does not concentrate holdings in such securities. |
| · | Inflation Protected Investing Risk. The risk that inflation-protected securities will react differently from other fixed income securities to changes in interest rates. The values of inflation-protected securities are anticipated to change in response to changes in “real” interest rates, which represent nominal (stated) interest rates reduced by the expected impact of inflation. Generally, the value of an inflation-protected security will fall when real interest rates rise and will rise when real interest rates fall. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
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| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Real Estate Investment Risk. The risk that the value of the fund’s shares will be negatively affected by factors specific to the real estate market, including interest rate risk, leverage risk, property risk and management risk. |
| · | Small and Medium Market Capitalization Risk. The risk that the fund's investments in small and medium market capitalization companies will increase the volatility and risk of loss to the fund, as compared with investments in larger, more established companies. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
| · | Value Stocks Risk. The risk that the fund will underperform when value investing is out of favor or that the fund’s investments will not appreciate in value as anticipated. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the RidgeWorth Growth Allocation Strategy as its own. The fund has identical investment objectives and strategies as the RidgeWorth Growth Allocation Strategy.
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The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of two broad-based securities market indexes and a composite benchmark. Updated performance information is available at [virtus.com] or by calling [800-243-1574].
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
(2/2/15) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Hybrid 70/30 Blend of the two indexes below (reflects no deduction for mutual fund fees or expenses) | ||||
| S&P 500® Index (reflects no deduction for mutual fund fees or expenses) | ||||
| Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for mutual fund fees or expenses) |
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The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The indexes are unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC (the “Adviser”).
Portfolio Management
Peter J. Batchelar , CFA, CAIA, Portfolio Manager for the Adviser and Vice President of Product Management for Virtus Investment Partners, has co-managed the fund since 2017.
Thomas P. Wagner , CFA, CAIA, Portfolio Manager for the Adviser and Vice President of Product Management for Virtus Investment Partners, has co-managed the fund since 2017.
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
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In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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More Information About Fund Expenses
RidgeWorth Capital Management LLC, to be renamed Virtus Fund Advisers, LLC (“RidgeWorth”), has contractually agreed to limit the total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occuring expenses (such as litigation) and acquired fund fees and expenses, if any) of the funds so that expenses do not exceed, on an annualized basis, the amounts indicated in the following table.
[To be completed in 485(b) filing]
|
Class A
Shares |
Class C
Shares |
Class I
Shares |
Class IS
Shares |
Class T
Shares |
Through
Date |
|
| Value Funds | ||||||
| Virtus Ceredex Large-Cap Value Equity Fund | July __, 2019 | |||||
| Virtus Ceredex Mid-Cap Value Equity Fund | July __, 2019 | |||||
| Virtus Ceredex Small-Cap Value Equity Fund | N/A | July __, 2019 | ||||
| Growth Funds | ||||||
| Virtus Silvant Large-Cap Growth Stock Fund | July __, 2019 | |||||
| Virtus Silvant Small-Cap Growth Stock Fund | July __, 2019 | |||||
| Virtus Zevenbergen Innovative Growth Stock Fund | N/A | N/A | July __, 2019 | |||
| International Fund | ||||||
| Virtus WCM International Equity Fund | N/A | July __, 2019 | ||||
| Allocation Strategies | ||||||
| Virtus Conservative Allocation Strategy Fund | N/A | July __, 2019 | ||||
| Virtus Growth Allocation Strategy Fund | N/A | July __, 2019 |
Following the contractual period, RidgeWorth may discontinue these and/or prior arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the time such reimbursement occurred, provided that the recapture does not cause the applicable fund(s) to exceed its expense limit in effect at the time of the waiver/reimbursement or recapture.
For those funds operating under an expense reimbursement arrangement and/or fee waiver during the prior fiscal year, total (net) fund operating expenses, including acquired fund fees and expenses, if any, after effect of any expense reimbursement and/or fee waiver were:
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|
Class A
Shares |
Class C
Shares |
Class I
Shares |
Class IS
Shares |
Class T
Shares |
|
| Value Funds | |||||
| Virtus Ceredex Large-Cap Value Equity Fund | |||||
| Virtus Ceredex Mid-Cap Value Equity Fund | |||||
| Virtus Ceredex Small-Cap Value Equity Fund | N/A | ||||
| Growth Funds | |||||
| Virtus Silvant Large-Cap Growth Stock Fund | |||||
| Virtus Silvant Small-Cap Growth Stock Fund | |||||
| Virtus Zevenbergen Innovative Growth Stock Fund | N/A | N/A | |||
| International Fund | |||||
| Virtus WCM International Equity Fund | N/A | ||||
| Allocation Strategies | |||||
| Virtus Conservative Allocation Strategy Fund | N/A | ||||
| Virtus Growth Allocation Strategy Fund | N/A |
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More Information About Investment Objectives and Principal Investment Strategies
The investment objectives and principal strategies of each fund are described in this section. Each of the following funds has either a fundamental or a non-fundamental investment objective as noted below. A fundamental investment objective may only be changed with shareholder approval. A non-fundamental investment objective may be changed by the Board of Trustees of that fund without shareholder approval. If a fund’s investment objective is changed, the prospectus will be supplemented to reflect the new investment objective and shareholders will be provided with at least 60 days advance notice of such change. There is no guarantee that a fund will achieve its objective(s).
Please see the statement of additional information (“SAI”) for additional information about the securities and investment strategies described in this prospectus and about additional securities and investment strategies that may be used by the funds.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide a high level of capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of large-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers large-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 1000® Value Index. As of [December 31, 2016], the market capitalization range of companies in the Russell 1000® Value Index was approximately $[____] billion and above. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of mid-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers mid-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell Midcap® Index. As of [December 31, 2016], the market capitalization range of companies in the Russell Midcap® Index was between approximately $[____] billion and $[____]. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of small-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers small-capitalization companies to be companies with market capitalizations between $50 million and $3 billion or with market capitalizations similar to those of companies in the Russell 2000® Value Index. As of [December 16, 2016], the market capitalization range of companies in the Russell 2000® Value Index was between approximately $[___] million and $[___] billion.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes are undervalued in the market relative to the industry sector and the company’s own valuation history. The subadviser evaluates potential catalysts that may cause an upward re-rating of the stock’s valuation. The common stocks purchased for the fund generally pay dividends at the time of purchase or are expected to pay dividends soon after their purchase.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. The fund also may invest in investment grade fixed income securities and mid- to large-capitalization common stocks that would not ordinarily be consistent with the fund’s objective. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide capital appreciation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other U.S.-traded equity securities of large-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers large-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 1000® Growth Index. As of [December 31, 2016], the market capitalization range of companies in the Russell 1000® Growth Index was between approximately $[_] billion and $[____] billion.
The subadviser will seek out securities it believes have strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes have above-average growth potential to beat expectations. The subadviser uses a “bottom-up” process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary benchmark. The subadviser then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The subadviser also applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency and sentiment or behavior factors.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide long-term capital appreciation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S.-traded equity securities of small-capitalization companies. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The subadviser considers small-capitalization companies to be companies with market capitalizations similar to those of companies in the Russell 2000® Growth Index. As of [December 31, 2016], the market capitalization range of companies in the Russell 2000® Growth Index was between approximately $[__] million and $[____] billion.
In selecting investments for purchase and sale, the subadviser chooses companies that it believes have above-average growth potential to beat expectations as a result of strong business fundamentals, such as revenue growth, improving cash flows, increasing margins and positive earning trends. The subadviser uses a “bottom-up” process based on company fundamentals. Risk controls are in place to assist in maintaining a portfolio that is diversified by sector and minimizes unintended risks relative to the primary benchmark. It then performs in-depth fundamental analysis to determine the quality and sustainability of expectations to determine whether or not the company is poised to beat expectations. The subadviser also applies proprietary quantitative models to rank stocks based on improving fundamentals, valuation, capital deployment and efficiency, and sentiment or behavior factors.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide long-term capital appreciation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other U.S.-traded equity securities. U.S.-traded equity securities may include American Depositary Receipts (“ADRs”). The fund may invest in companies of any size and may invest a portion of its assets in non-U.S. issued securities of foreign companies.
The fund invests primarily in common stocks of companies that exhibit strong growth characteristics. In selecting investments for purchase and sale, the subadviser uses a fundamental research approach to identify companies with favorable prospects for future revenue, earnings, and/or cash flow growth. Growth “drivers” are identified for each company and become critical to the ongoing evaluation process. Industry growth dynamics, company competitive positioning, pricing flexibility, and diversified product offerings are evaluated, providing the foundation for further fundamental research to determine the weighting of the fund’s investments. Generally the fund will hold a limited number of securities.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide long-term capital appreciation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks and other equity securities of foreign companies. These foreign companies may be located in emerging markets. The fund’s investments in equity securities may include common stocks, preferred stocks, warrants and depositary receipts.
The fund’s investments in depositary receipts may include American, European, Canadian and Global Depository Receipts (“ADRs”, “EDRs”, “CDRs” and “GDRs”, respectively). ADRs are receipts that represent interests in foreign securities held on deposit by U.S. banks. EDRs and GDRs have the same qualities as ADRs, except that they may be traded in various non-U.S. trading markets.
In selecting investments for purchase and sale, the subadviser uses a bottom-up approach that seeks to identify companies with attractive fundamentals, such as long-term growth in revenue and earnings, and that show a strong probability for superior future growth. The subadviser’s investment process focuses on seeking companies that are industry leaders with sustainable competitive advantages; corporate cultures emphasizing strong, quality and experienced management; low or no debt; and attractive relative valuations. The subadviser also considers other factors including political risk, monetary policy risk, and regulatory risk in selecting securities.
Although the fund may invest in any size companies, it will generally invest in large-capitalization established multinational companies. The subadviser considers large-capitalization companies to be those with market capitalization of $3.5 billion or greater at the time of investment. The fund generally will invest in securities of companies located in different regions and in at least three different countries. However, from time to time, the fund may have a significant portion of its assets invested in the securities of companies in one or a few countries or regions.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide a high level of capital appreciation and current income.
Principal Investment Strategies:
The fund invests pursuant to an asset allocation strategy in a combination of affiliated fixed income funds and exchange-traded funds (“ETFs”) that invest in bonds (together, “Underlying Fixed Income Funds”), and to a lesser extent, affiliated equity funds and ETFs that invest in equities (together, “Underlying Equity Funds” and, together with Underlying Fixed Income Funds, “Underlying Funds”). The fund invests between 50% and 80% of its assets in Underlying Fixed Income Funds, and between 20% and 40% of its assets in Underlying Equity Funds. The fund’s remaining assets may be invested in cash and cash equivalents, including unaffiliated money market funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper.
The fund may invest in Underlying Funds that:
| · | invest in debt instruments, including mortgage- and asset-backed instruments, securities restricted as to resale, common stocks and other equity securities of U.S. and non-U.S. companies including those in both developed and emerging markets; |
| · | invest in bank loans and other below investment grade instruments; and |
| · | invest in inflation-protected public obligations of the U.S. Treasury (“TIPS”), which are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. |
The fund is a “fund of funds.” The term “fund of funds” is typically used to describe mutual funds, such as the fund, whose primary investment strategy involves investing in other investment companies, such as ETFs and other mutual funds. Investments in securities of other investment companies, including ETFs, are subject to statutory limitations prescribed in the Investment Company Act of 1940, as amended (the “1940 Act”). Absent an available exemption, a fund may not: (i) acquire more than 3% of the voting securities of any other investment company, (ii) invest more than 5% of its total assets in securities of any one investment company, or (iii) invest more than 10% of its assets in securities of all investment companies. The fund has obtained exemptive relief from the SEC to permit it to invest in affiliated and unaffiliated funds including ETFs, beyond these statutory limitations, subject to certain conditions. Many ETFs also have obtained exemptive relief from the SEC to permit unaffiliated funds to invest in the ETF’s shares beyond these statutory limitations, subject to certain conditions. The fund may rely on the various exemptive orders to invest in affiliated and unaffiliated mutual funds, including the applicable unaffiliated ETFs.
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In selecting a diversified portfolio of Underlying Funds, the adviser analyzes many factors, including the Underlying Funds’ investment objectives, total return, volatility and expenses. The adviser or subadviser to each Underlying Fund is responsible for deciding which securities to purchase and sell for its respective Underlying Fund.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to provide long-term capital appreciation.
Principal Investment Strategies:
The fund invests pursuant to an asset allocation strategy in a combination of affiliated equity funds and exchange-traded funds (“ETFs”) that invest in equities (together, “Underlying Equity Funds”), and, to a lesser extent, affiliated fixed income funds and ETFs that invest in bonds (together, “Underlying Fixed Income Funds” and, together with the Underlying Equity Funds, the “Underlying Funds”). The fund invests between 60% and 80% of its assets in Underlying Equity Funds and between 10% and 40% of its assets in Underlying Fixed Income Funds. The fund’s remaining assets may be invested in cash and cash equivalents, including unaffiliated money market funds, securities issued by the U.S. government, its agencies or instrumentalities, repurchase agreements and short-term paper.
The fund may invest in Underlying Funds that:
| · | invest in common stocks, other equity securities and debt instruments, including mortgage- and asset-backed instruments and securities restricted as to resale, of U.S. and non-U.S. companies. The Underlying Funds may invest in companies of any size and in both developed and emerging markets; |
| · | invest in bank loans and other below investment grade instruments; and |
| · | invest in inflation-protected public obligations of the U.S. Treasury (“TIPS”), which are securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. |
The fund is a “fund of funds.” The term “fund of funds” is typically used to describe mutual funds, such as the fund, whose primary investment strategy involves investing in other investment companies, such as ETFs and other mutual funds. Investments in securities of other investment companies, including ETFs, are subject to statutory limitations prescribed in the Investment Company Act of 1940, as amended (the “1940 Act”). Absent an available exemption, a fund may not: (i) acquire more than 3% of the voting securities of any other investment company, (ii) invest more than 5% of its total assets in securities of any one investment company, or (iii) invest more than 10% of its assets in securities of all investment companies. The fund has obtained exemptive relief from the SEC to permit it to invest in affiliated and unaffiliated funds including ETFs, beyond these statutory limitations, subject to certain conditions. Many ETFs also have obtained exemptive relief from the SEC to permit unaffiliated funds to invest in the ETF’s shares beyond these statutory limitations, subject to certain conditions. The fund may rely on the various exemptive orders to invest in affiliated and unaffiliated mutual funds, including the applicable unaffiliated ETFs.
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In selecting a diversified portfolio of Underlying Funds, the adviser analyzes many factors, including the Underlying Funds’ investment objectives, total returns, volatility and expenses. The adviser or subadviser to each Underlying Fund is responsible for deciding which securities to purchase and sell for its respective Underlying Fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding cash or investing, without limit, in cash equivalents or other fixed income securities. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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More Information About Risks Related to Principal Investment Strategies
Each of the funds may not achieve its objective, and each is not intended to be a complete investment program.
Generally, the value of a fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of such fund’s investments decreases, you will lose money.
Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected and investments may fail to perform as the adviser or a subadviser expects. As a result, the value of your shares may decrease.
Specific risks of investing in the funds are identified in the below table and described in detail following the table. For certain funds, the indicated risks apply indirectly through the fund’s investments in other funds.
| Risks |
Virtus
Ceredex Large-Cap Value Equity Fund |
Virtus
Ceredex Mid-Cap Value Equity Fund |
Virtus
Ceredex Small-Cap Value Equity Fund |
Virtus
Silvant Large-Cap Growth Stock Fund |
Virtus
Silvant Small-Cap Growth Stock Fund |
Virtus Zevenbergen
Innovative Growth Stock Fund |
Virtus WCM
International Equity Fund |
Virtus
Conservative Allocation Strategy Fund |
Virtus
Growth Allocation Strategy Fund |
| Affiliated Fund | X | X | |||||||
| Allocation | X | X | |||||||
| Convertible Securities | X | ||||||||
| Debt Securities | X | X | |||||||
| Call | X | X | |||||||
| Credit | X | X | |||||||
| Interest Rate | X | X | |||||||
| Depositary Receipts | X | X | X | X | X | X | X | ||
| Derivatives | X | X | |||||||
| Equity Securities | X | X | X | X | X | X | X | X | X |
|
Growth Stocks |
X | X | X | X | X | X | |||
|
Large Market Capitalization Companies |
X | X | X | X | X | X | |||
| Medium Market Capitalization Companies | X | ||||||||
|
Small and Medium Market Capitalization Companies |
X | X | X | ||||||
|
Small Market Capitalization Companies |
X | X | |||||||
| Value Stocks | X | X | X | X | X | ||||
| Exchange-Traded Funds (“ETFs”) | X | X | |||||||
| Foreign Investing | X | X | X | X | |||||
|
Currency Rate |
X | X | X | X | |||||
|
Emerging Market Investing |
X | X | X | ||||||
| Fund of Funds | X | X | |||||||
| Geographic Concentration | X | ||||||||
| High Yield-High Risk Fixed Income Securities (Junk Bonds) | X | X | |||||||
| Inflation Protected Investing | X | X | |||||||
| Illiquid and Restricted Securities | X | X | |||||||
| Industry/Sector Concentration | X | X | X | X | X | X | |||
| Limited Number of Investments | X | ||||||||
| Loans | X | X | |||||||
| Market Volatility | X | X | X | X | X | X | X | X | X |
| Mortgage-Backed and Asset-Backed Securities | X | X | |||||||
| Portfolio Turnover | X | X | |||||||
| Preferred Stocks | X | ||||||||
| Real Estate | X | X | |||||||
| Sector Focused Investing | X | X | X | ||||||
| Unrated Fixed Income Securities | X | X | |||||||
| Preferred Stocks | X | ||||||||
| U.S. Government Securities | X | X |
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Affiliated Fund
The fund’s adviser has the authority to select and substitute affiliated and/or unaffiliated mutual funds to serve as underlying funds, which may create a conflict of interest because the adviser receives fees from affiliated funds, some of which pay the adviser more than others. However, as a fiduciary to the fund the adviser is obligated to act in the fund’s best interest when selecting underlying funds.
Allocation
A fund’s investment performance depends, in part, upon how its assets are allocated and reallocated by its adviser. If the fund’s exposure to equities and fixed income securities, or to different asset classes, deviates from the adviser’s intended allocation, or if the fund’s allocation is not optimal for market conditions at a given time, the fund’s performance may suffer.
Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stock, rights, warrants or other securities that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. If a convertible security is called for redemption, the respective fund may have to redeem the security, convert it into common stock or sell it to a third party at a price and time that is not beneficial for the fund. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Securities convertible into common stocks may have higher yields than common stocks but lower yields than comparable nonconvertible securities.
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Debt Securities
Debt securities are subject to various risks, the most prominent of which are credit risk and interest rate risk. These risks can affect a security’s price volatility to varying degrees, depending upon the nature of the instrument. Risks associated with investing in debt securities include the following:
| • | Call Risk. There is a risk that issuers will prepay fixed rate obligations when interest rates fall. A fund holding callable securities therefore may be forced to reinvest in obligations with lower interest rates than the original obligations and otherwise may not benefit fully from the increase in value that other fixed income securities experience when rates decline. |
| • | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| • | Interest Rate Risk. The values of debt securities usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the value of existing debt instruments, and rising interest rates generally decrease the value of existing debt instruments. Changes in a debt instrument’s value usually will not affect the amount of interest income paid to a fund, but will affect the value of the fund’s shares. Interest rate risk is generally greater for investments with longer maturities. |
Certain securities pay interest at variable or floating rates. Variable rate securities reset at specified intervals, while floating rate securities reset whenever there is a change in a specified index rate. In most cases, these reset provisions reduce the effect of changes in market interest rates on the value of the security. However, some securities do not track the underlying index directly, but reset based on formulas that can produce an effect similar to leveraging; others may also provide for interest payments that vary inversely with market rates. The market prices of these securities may fluctuate significantly when interest rates change.
Some investments give the issuer the option to call or redeem an investment before its maturity date. If an issuer calls or redeems an investment during a time of declining interest rates, a fund might have to reinvest the proceeds in an investment offering a lower yield, and therefore it might not benefit from any increase in value as a result of declining interest rates.
| • | Liquidity Risk. Certain debt securities may be substantially less liquid than many other securities, such as U.S. Government securities or common stocks. |
| • | Long-Term Maturities/Durations Risk. The risk that fixed income securities with longer maturities or durations may be subject to greater price fluctuations due to interest rate, tax law, and general market changes than securities with shorter maturities or durations. |
Depositary Receipts
Certain funds may invest in American Depositary Receipts (ADRs) sponsored by U.S. banks, European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), ADRs not sponsored by U.S. banks, other types of depositary receipts (including non-voting depositary receipts), and other similar instruments representing securities of foreign companies.
Although certain depositary receipts may reduce or eliminate some of the risks associated with foreign investing, these types of securities generally are subject to many of the same risks as direct investment in securities of foreign issuers.
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Derivatives
Derivative transactions are contracts whose value is derived from the value of an underlying asset, index or rate, including futures, options, non-deliverable forwards, forward foreign currency exchange contracts and swap agreements. A fund may use derivatives to hedge against factors that affect the value of its investments, such as interest rates and foreign currency exchange rates. A fund may also utilize derivatives as part of its overall investment technique to gain or lessen exposure to various securities, markets, volatility, dividend payments and currencies.
Derivatives typically involve greater risks than traditional investments. It is generally more difficult to ascertain the risk of, and to properly value, derivative contracts. Many derivatives, and particularly those that are privately negotiated, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the fund. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions. Derivatives are usually less liquid than traditional securities and are subject to counterparty risk (the risk that the other party to the contract will default or otherwise not be able to perform its contractual obligations). In addition, some derivatives transactions may involve potentially unlimited losses.
Derivative contracts entered into for hedging purposes may also subject a fund to losses if the contracts do not correlate with the assets, indexes or rates they were designed to hedge. Gains and losses derived from hedging transactions are, therefore, more dependent upon the subadviser’s ability to correctly predict the movement of the underlying asset prices, indexes or rates.
As an investment company registered with the SEC, each fund is required to identify on its books (often referred to as “asset segregation”) liquid assets, or engage in other SEC-approved measures, to “cover” open positions with respect to certain kinds of derivative instruments. If a fund investing in such instruments has insufficient cash to meet such requirements, it may have to sell other investments, including at disadvantageous times.
Governments, agencies and/or other regulatory bodies may adopt or change laws or regulations that could adversely affect a fund’s ability to invest in derivatives as the fund’s subadviser intends. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), among other things, grants the Commodity Futures Trading Commission (the “CFTC”) and SEC broad rulemaking authority to implement various provisions of the Dodd-Frank Act including comprehensive regulation of the over-the-counter (“OTC”) derivatives market. The implementation of the Dodd-Frank Act could adversely affect a fund by placing limits on derivative transactions, and/or increasing transaction and/or regulatory compliance costs. For example, the CFTC has recently adopted new rules that will apply a new aggregation standard for position limit purposes, which may further limit a fund’s ability to trade futures contracts and swaps.
There are also special tax rules applicable to certain types of derivatives, which could affect the amount, timing and character of a fund’s income or loss and hence of its distributions to shareholders by causing holding period adjustments, converting short-term capital losses into long-term capital losses, and accelerating a fund’s income or deferring its losses. A fund’s use of derivatives may also increase the amount of taxes payable by shareholders or the resources required by the fund or its adviser and/or subadviser(s) to comply with particular regulatory requirements.
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Equity Securities
Generally, prices of equity securities are more volatile than those of fixed income securities. The prices of equity securities will rise and fall in response to a number of different factors. In particular, equity securities will respond to events that affect entire financial markets or industries (such as changes in inflation or consumer demand) and to events that affect particular issuers (such as news about the success or failure of a new product). Equity securities also are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods of time. When the value of the stocks held by the fund goes down, the value of the fund’s shares will be affected.
| • | Growth Stocks Risk. Growth stocks can react differently to issuer, political, market, and economic developments than the market as a whole and other types of stocks. Growth stocks also tend to be more expensive relative to their earnings or assets compared to other types of stocks, and as a result they tend to be sensitive to changes in their earnings and more volatile than other types of stocks. |
| • | Large Market Capitalization Companies Risk. The value of investments in larger companies may not rise as much as investments in smaller companies, and larger companies may be unable to respond quickly to competitive challenges, such as changes in technology and consumer tastes. |
| • | Medium Market Capitalization Companies Risk. Medium-sized companies often have narrower markets, fewer products or services to offer, and more limited managerial and financial resources than larger, more established companies. As a result, the performance of medium-sized companies may be more volatile, and they may face a greater risk of business failure, which could increase the volatility and risk of loss to the fund. |
| • | Small and Medium Market Capitalization Companies Risk. Small and medium-sized companies often have narrower markets, fewer products or services to offer, and more limited managerial and financial resources than larger, more established companies. As a result, the performance of small and medium-sized companies may be more volatile, and they may face a greater risk of business failure, which could increase the volatility and risk of loss to the fund. |
| • | Small Market Capitalization Companies Risk. Small companies often have narrower markets, fewer products or services to offer, and more limited managerial and financial resources than larger, more established companies. As a result, the performance of small companies may be more volatile, and may face a greater risk of business failure, which could increase the volatility and risk of loss to the fund. |
| • | Value Stocks Risk. A company may be undervalued due to market or economic conditions, temporary earnings declines, unfavorable developments affecting the company and other factors, or because it is associated with a market sector that generally is out of favor with investors. Undervalued stocks tend to be inexpensive relative to their earnings or assets compared to other types of stock. However, these stocks can continue to be inexpensive for long periods of time and may not realize their full economic value. |
Exchange-Traded Funds (ETFs)
ETFs invest in a portfolio of securities designed to track a particular market segment or index. The risks associated with investing in ETFs generally reflect the risks of owning shares of the underlying securities the ETF is designed to track, although lack of liquidity in an ETF could result in its value being more volatile than the underlying portfolio of securities. Assets invested in ETFs incur a layering of expenses, including operating costs and advisory fees that fund shareholders indirectly bear; such expenses may exceed the expenses the fund would incur if it invested directly in the underlying portfolio of securities the ETF is designed to track. Shares of ETFs trade on a securities exchange and may trade at, above, or below their net asset value.
Foreign Investing
Investing in securities of non-U.S. companies involves special risks and considerations not typically associated with investing in U.S. companies, and the values of non-U.S. securities may be more volatile than those of U.S. securities.
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The values of non-U.S. securities are subject to economic and political developments in countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies, and to changes in currency exchange rates. Values may also be affected by restrictions on receiving the investment proceeds from a non-U.S. country.
In general, less information is publicly available about non-U.S. companies than about U.S. companies. Non-U.S. companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. Certain foreign issuers classified as passive foreign investment companies may be subject to additional taxation risk.
| • | Currency Rate Risk. Because the foreign securities in which a fund invests generally trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. Because the value of each fund’s shares is calculated in U.S. dollars, it is possible for a fund to lose money by investing in a foreign security if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the fund’s holdings goes up. Generally, a strong U.S. dollar relative to such other currencies will adversely affect the value of the fund’s holdings in foreign securities. |
| • | Emerging Market Investing Risk. The risks of foreign investments are generally greater in countries whose markets are still developing than they are in more developed markets. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Since these markets are often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may also have policies that restrict investment by foreigners, or that prevent foreign investors from withdrawing their money at will. Certain emerging markets may also face other significant internal or external risks, including the risk of war and civil unrest. For all of these reasons, investments in emerging markets may be considered speculative. To the extent that a fund invests a significant portion of its assets in a particular emerging market, the fund will be more vulnerable to financial, economic, political and other developments in that country, and conditions that negatively impact that country will have a greater impact on the fund as compared with a fund that does not have its holdings concentrated in a particular country. |
Fund of Funds
Achieving the fund’s objective will depend on the performance of the underlying mutual funds, which depends on the particular securities in which the underlying mutual funds invest. Indirectly, the fund is subject to all risks associated with the underlying mutual funds. Since the fund’s performance depends on that of each underlying mutual fund, it may be subject to increased volatility.
Assets invested in other mutual funds incur a layering of expenses, including operating costs, advisory fees and administrative fees that you, as a shareholder in the fund, indirectly bear. Such fees and expenses may exceed the fees and expenses the fund would have incurred if it invested in the underlying fund’s assets directly. As the underlying funds or the fund’s allocations among the underlying funds change from time to time, or to the extent that the expense ratio of the underlying funds changes, the weighted average operating expenses borne by the fund may increase or decrease. If the fund invests in closed-end funds, it may incur added expenses such as additional management fees and trading costs and additional risks associated with trading at a discount to NAV and use of leverage.
The underlying funds may change their investment objective or policies without the approval of the fund, and the fund might be forced to withdraw its investment from the underlying fund at a time that is unfavorable to the fund.
Each underlying fund may be subject to risks other than those described because the types of investments made by an underlying fund can change over time. For further description of the risks associated with the underlying funds, please consult the underlying funds’ prospectus.
Geographic Concentration Risk
The value of the investments of a fund that focuses its investments in a particular geographic location will be highly sensitive to financial, economic, political and other developments affecting the fiscal stability of that location, and conditions that negatively impact that location will have a greater impact on the fund as compared with a fund that does not have its holdings similarly concentrated. Events negatively affecting such location are therefore likely to cause the value of the fund’s shares to decrease, perhaps significantly.
High-Yield/High-Risk Fixed Income Securities (Junk Bonds)
Securities rated “BB” or below by S&P or Fitch, or “Ba” or below by Moody’s, may be known as “high-yield” securities and commonly referred to as “junk bonds.” The highest of the ratings among S&P, Fitch and Moody's is used to determine the security's classification. Such securities entail greater price volatility and credit and interest rate risk than investment grade securities. Analysis of the creditworthiness of high-yield/high-risk issuers is more complex than for higher-rated securities, making it more difficult for a fund's subadviser to accurately predict risk. There is a greater risk with high-yield/high-risk fixed income securities that an issuer will not be able to make principal and interest payments when due. If the fund pursues missed payments, there is a risk that fund expenses could increase. In addition, lower-rated securities may not trade as often and may be less liquid than higher-rated securities, especially during periods of economic uncertainty or change. As a result of all of these factors, these bonds are generally considered to be speculative.
Illiquid and Restricted Securities
Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. When there is no willing buyer or a security cannot be readily sold, the fund may have to sell at a lower price or may be unable to sell the security at all. The sale of such securities may also require the fund to incur expenses in addition to those normally associated with the sale of a security.
In addition to this, certain shareholders, including affiliates of a fund’s investment adviser and/or subadviser(s), may from time to time own or control a significant percentage of the fund’s shares. Redemptions by these shareholders of their shares of the fund may increase the fund’s liquidity risk by causing the Fund to have to sell securities at an unfavorable time and/or price.
Industry/Sector Concentration
The value of the investments of a fund that focuses its investments in a particular industry or market sector will be highly sensitive to financial, economic, political and other developments affecting that industry or market sector, and conditions that negatively impact that industry or market sector will have a greater impact on the fund as compared with a fund that does not have its holdings similarly concentrated. Events negatively affecting the industries or market sectors in which a fund has invested are therefore likely to cause the value of the fund’s shares to decrease, perhaps significantly.
Inflation Protected Investing
The current market value of inflation-protected securities is not guaranteed and will fluctuate. Inflation-protected securities may react differently from other fixed income securities to changes in interest rates. Because interest rates on inflation-protected securities are adjusted for inflation, the values of these securities are not materially affected by inflation expectations. Therefore, the value of inflation-protected securities are anticipated to change in response to changes in “real” interest rates, which represent nominal (stated) interest rates reduced by the expected impact of inflation. Generally, the value of an inflation-protected security will fall when real interest rates rise and will rise when real interest rates fall.
Because the interest and/or principal payments on an inflation-protected security are adjusted periodically for changes in inflation, the income distributed by a fund invested in such securities may be irregular. Although the U.S. Treasury guarantees to pay at least the original face value of any inflation-protected securities the Treasury issues, other issuers may not offer the same guarantee. Also, inflation-protected securities, including those issued by the U.S. Treasury, are not protected against deflation. As a result, in a period of deflation, the inflation-protected securities held by a fund may not pay any income and the fund may suffer a loss. While inflation-protected securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in a fund’s value. If interest rates rise due to reasons other than inflation, a fund’s investment in these securities may not be protected to the extent that the increase is not reflected in the securities’ inflation measures. In addition, positive adjustments to principal generally will result in taxable income to a fund at the time of such adjustments (which generally would be distributed by the fund as part of its taxable dividends), even though the principal amount is not paid until maturity. There can be no assurance that the inflation index used will accurately measure the real rate of inflation in the prices of goods and services. A fund’s investments in inflation-linked securities may lose value in the event that the actual rate of inflation is different from the rate of the inflation index.
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Limited Number of Investments
Because the fund invests in a limited number of securities, the fund’s portfolio will be more susceptible to factors adversely affecting issuers of securities in the fund’s portfolio than would a fund holding a greater number of securities.
Loans
Investing in loans (including loan assignments, loan participations and other loan instruments) carries certain risks in addition to the risks typically associated with high-yield/high-risk fixed income securities. Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. In the event a borrower defaults, a fund’s access to the collateral may be limited or delayed by bankruptcy or other insolvency laws. There is a risk that the value of the collateral securing the loan may decline after a fund invests and that the collateral may not be sufficient to cover the amount owed to the fund. If the loan is unsecured, there is no specific collateral on which the fund can foreclose. In addition, if a secured loan is foreclosed, a fund may bear the costs and liabilities associated with owning and disposing of the collateral, including the risk that collateral may be difficult to sell.
Transactions in many loans settle on a delayed basis. As a result, sale proceeds related to the sale of loans may not be available to make additional investments or to meet the Fund’s redemption obligations until potentially a substantial period of time after the sale of the loans. No active trading market may exist for some loans, which may impact the ability of the Fund to realize full value in the event of the need to liquidate such assets. Adverse market conditions may impair the liquidity of some actively traded loans. Loans also may be subject to restrictions on resale, which can delay the sale and adversely impact the sale price. Difficulty in selling a loan can result in a loss. Loans made to finance highly leveraged corporate acquisitions may be especially vulnerable to adverse changes in economic or market conditions. Certain loans may not be considered “securities,” and purchasers, such as a fund, therefore may not be entitled to rely on the strong anti-fraud protections of the federal securities laws. With loan participations, a fund may not be able to control the exercise of any remedies that the lender would have under the loan and likely would not have any rights against the borrower directly, so that delays and expense may be greater than those that would be involved if a fund could enforce its rights directly against the borrower.
Market Volatility
The value of the securities in which a fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods.
Instability in the financial markets has exposed each fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments that it holds. In response to financial markets that experienced extreme volatility, and in some cases a lack of liquidity, the U.S. Government and other governments have taken a number of unprecedented actions, including acquiring distressed assets from financial institutions and acquiring ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear. Additional legislation or government regulation may also change the way in which funds themselves are regulated, which could limit or preclude a fund’s ability to achieve its investment objective.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities represent interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. Asset-backed securities represent interests in pools of underlying assets such as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. These two types of securities share many of the same risks.
The impairment of the value of collateral or other assets underlying a mortgage-backed or asset-backed security, such as that resulting from non-payment of loans, may result in a reduction in the value of such security and losses to a fund.
Early payoffs in the loans underlying such securities may result in a fund receiving less income than originally anticipated. The variability in prepayments will tend to limit price gains when interest rates drop and exaggerate price declines when interest rates rise. In the event of high prepayments, a fund may be required to invest proceeds at lower interest rates, causing the fund to earn less than if the prepayments had not occurred. Conversely, rising interest rates may cause prepayments to occur at a slower than expected rate, which may effectively change a security that was considered short- or intermediate-term into a long-term security. Long-term securities tend to fluctuate in value more widely in response to changes in interest rates than shorter-term securities.
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Portfolio Turnover Risk
A fund’s investment strategy may result in consistently frequently high turnover rate. A high portfolio turnover rate may result in correspondingly greater brokerage commission expenses and the distribution to shareholders of additional capital gains for tax purposes, some of which may be taxable at ordinary income rates. These factors may negatively affect the fund’s performance.
Preferred Stocks
Preferred stocks may provide a higher dividend rate than the interest yield on debt securities of the same issuer, but are subject to greater risk of fluctuation in market value and greater risk of non-receipt of income. Unlike interest on debt securities, dividends on preferred stocks must be declared by the issuer’s board of directors before becoming payable. Preferred stocks are in many ways like perpetual debt securities, providing a stream of income but without stated maturity date. Because they often lack a fixed maturity or redemption date, preferred stocks are likely to fluctuate substantially in price when interest rates change. Such fluctuations generally are comparable to or exceed those of long-term government or corporate bonds (those with maturities of fifteen to thirty years). Preferred stocks have claims on assets and earnings of the issuer that are subordinate to the claims of all creditors but senior to the claims of common stockholders. A preferred stock rating differs from a bond rating because it applies to an equity issue which is intrinsically different from, and subordinated to, a debt issue. Preferred stock ratings generally represent an assessment of the capacity and willingness of an issuer to pay preferred stock dividends and any applicable sinking fund obligations. Preferred stock also may be subject to optional or mandatory redemption provisions, and may be significantly less liquid than many other securities, such as U.S. Government securities, corporate debt or common stock.
Real Estate Investment
Investing in companies that invest in real estate (“Real Estate Companies”) exposes a fund to the risks of owning real estate directly, as well as to risks that relate specifically to the way in which Real Estate Companies are organized and operated. Real estate is highly sensitive to general and local economic conditions and developments, and characterized by intense competition and periodic overbuilding. Real Estate Companies may lack diversification due to ownership of a limited number of properties and concentration in a particular geographic region or property type.
Sector Focused Investing
The value of the investments of a fund that focuses its investments in a particular market sector will be highly sensitive to financial, economic, political and other developments affecting that market sector, and conditions that negatively impact that market sector will have a greater impact on the fund as compared with a fund that does not have its holdings similarly focused. Events negatively affecting the market sectors in which a fund has invested are therefore likely to cause the value of the fund’s shares to decrease, perhaps significantly.
Unrated Fixed Income Securities
A fund’s subadviser has the authority to make determinations regarding the quality of such securities for the purposes of assessing whether they meet the fund’s investment restrictions. However, analysis of unrated securities is more complex than that of rated securities, making it more difficult for the subadviser to accurately predict risk. Unrated fixed income securities may not be lower in quality than rated securities, but due to their perceived risk they may not have as broad a market as rated securities, making it more difficult to sell unrated securities.
U.S. Government Securities
Obligations issued or guaranteed by the U.S. Government, its agencies, authorities and instrumentalities and backed by the full faith and credit of the United States only guarantee principal and interest will be timely paid to holders of the securities. The entities do not guarantee that the value of fund shares will increase, and in fact, the market values of such obligations may fluctuate. In addition, not all U.S. Government securities are backed by the full faith and credit of the United States; some are the obligation solely of the entity through which they are issued. There is no guarantee that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law.
The funds may buy other types of securities or employ other portfolio management techniques. Please refer to the SAI for more detailed information about these and other investment techniques of the funds.
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The Adviser
RidgeWorth Capital Management LLC, to be renamed Virtus Fund Advisers, LLC, located at [3333 Piedmont Road, Suite 1500, Atlanta, GA 30305] (the “Adviser”), serves as the investment adviser to the funds. In addition to being an investment adviser registered with the Securities and Exchange Commission (the “SEC”), the Adviser is a money-management holding company with multiple style-focused investment boutiques. As of December 31, 2016, the Adviser managed approximately $___ billion in assets.
Subject to the direction of the funds’ Board of Trustees, the Adviser is responsible for managing the funds’ investment programs and for the general operations of the funds, including oversight of the funds’ subadviser.
The Adviser has appointed and oversees the activities of each of the subadvisers for the funds shown in the table below. For the funds shown below, each subadviser manages the investments of each fund to conform with its investment policies as described in this prospectus.
Management Fees
Each fund pays the Adviser an investment management fee that is accrued daily against the value of the fund’s net assets at the following annual rates:
| Virtus Ceredex Large-Cap Value Equity Fund | |
| Virtus Ceredex Mid-Cap Value Equity Fund | |
| Virtus Ceredex Small-Cap Value Equity Fund | |
| Virtus Silvant Large-Cap Growth Stock Fund | |
| Virtus Silvant Small-Cap Growth Stock Fund | |
| Virtus Zevenbergen Innovative Growth Stock Fund | |
| Virtus WCM International Equity Fund | |
| Virtus Conservative Allocation Strategy Fund | |
| Virtus Growth Allocation Strategy Fund |
In its last fiscal year, each fund paid fees to the Adviser at the following percentage of average net assets:
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| Virtus Ceredex Large-Cap Value Equity Fund | |
| Virtus Ceredex Mid-Cap Value Equity Fund | |
| Virtus Ceredex Small-Cap Value Equity Fund | |
| Virtus Silvant Large-Cap Growth Stock Fund | |
| Virtus Silvant Small-Cap Growth Stock Fund | |
| Virtus Zevenbergen Innovative Growth Stock Fund | |
| Virtus WCM International Equity Fund | |
| Virtus Conservative Allocation Strategy Fund | |
| Virtus Growth Allocation Strategy Fund |
The Subadvisers
Ceredex, a wholly-owned subsidiary of the Adviser, is located at 301 East Pine Street, Suite 500, Orlando, Florida 32801. Ceredex is an investment adviser registered with the SEC. The firm was established in 2008 after 19 years functioning as the Adviser’s value style investment management team. As of [June 30, 2016], Ceredex had approximately $[10.2] billion in assets under management. Ceredex is a value equity asset management firm that seeks to identify catalysts that may lead to appreciation in undervalued, dividend-paying stocks.
Silvant, a wholly-owned subsidiary of the Adviser, is located at 3333 Piedmont Road, Suite 1500, Atlanta, Georgia 30305. Silvant is an investment adviser registered with the SEC. The firm was established in 2008 after 24 years functioning as the Adviser’s growth style investment management team. As of [June 30, 2016], Silvant had approximately $[1.3] billion in assets under management. Silvant focuses on managing growth equity products for a diverse range of institutional clients.
WCM is located at 280 Brooks Street, Laguna Beach, California 92651. WCM is an investment adviser registered with the SEC. The firm was established in 1976. As of [June 30, 2016], WCM had approximately $[14.1] billion in assets under management.
Zevenbergen, a minority-owned subsidiary of the Adviser, is located at 601 Union Street, Suite 4600, Seattle, Washington 98101. Zevenbergen is an investment adviser registered with the SEC. The firm was established in 1987 and, as of [June 30, 2016], had approximately $[2.2] billion in assets under management. Zevenbergen specializes in aggressive growth-equity investment advisory services for separately managed portfolios and mutual funds.
RidgeWorth pays each subadviser a subadvisory fee which is calculated on the fund’s average daily net assets at the following annual rates:
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[A discussion regarding the basis for the Board of Trustees approving the investment advisory and subadvisory agreements of the funds will be available in the funds’ semi-annual report covering the period April 1, 2017 through September 30, 2017.]
The funds and the Adviser have received an exemptive order from the SEC that permits the Adviser, subject to certain conditions and without the approval of shareholders to: (a) select both unaffiliated subadvisers and certain wholly-owned affiliated subadvisers to manage all or a portion of the assets of a fund, and enter into subadvisory agreements with such subadvisers, and (b) materially amend subadvisory agreements with such subadvisers. In such circumstances, shareholders would receive notice of such action.
Portfolio Management
The following individuals are jointly and primarily responsible for the day-to-day management of the funds’ portfolios.
Ceredex
| Virtus Ceredex Large-Cap Value Equity Fund |
Mills Riddick, CFA (since 1995) |
| Virtus Ceredex Mid-Cap Value Equity Fund |
Don Wordell, CFA (since 2001) |
| Virtus Ceredex Small-Cap Value Equity Fund |
Brett Barner, CFA (since 1994) |
Brett Barner, CFA. Mr. Barner currently serves as Managing Director of Ceredex. He has worked in investment management since 1985.
Mills Riddick, CFA. Mr. Riddick currently serves as Chief Investment Officer of Ceredex and as a Vice President of the Adviser. He has worked in investment management since 1982.
Don Wordell, CFA. Mr. Wordell currently serves as Managing Director of Ceredex. He has worked in investment management since 1996.
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[RidgeWorth]
| Virtus Conservative Allocation Strategy Fund |
Peter J. Batchelar, CFA, CAIA (since 2017) |
| Virtus Growth Allocation Strategy Fund |
Thomas P. Wagner, CFA, CAIA (since 2017) |
Peter J. Batchelar , CFA, CAIA. Mr. Batchelar is Portfolio Manager for the Adviser and Vice President, Product Management for Virtus Investment Partners. In addition to leading the company's product management team, he is responsible for the oversight process used to monitor the company’s investment strategies. Mr. Batchelar joined Phoenix Investment Partners, the predecessor to Virtus Investment Partners, in 2004. Prior to joining Phoenix, he held positions at John A. Levin & Co. and Credit Suisse Asset Management. Previously, Mr. Batchelar was a Portfolio Manager at Mellon Capital Management, where he managed Global Tactical Asset Allocation portfolios for institutional clients. In this capacity, Mr. Batchelar was responsible for allocating portfolio assets among equity, fixed income, and derivative investments across the globe. Mr. Batchelar began his career in the investment industry in 1994.
Thomas P. Wagner , CFA, CAIA. Mr. Wagner is Portfolio Manager for the Adviser and Vice President, Product Management for Virtus Investment Partners. His primary responsibilities include managing the profitability and marketability of investment strategies covered, and researching the marketplace and Virtus’ internal capabilities for new products and product modifications. Prior to joining the firm in 2013, Mr. Wagner was a managing director in the TRS Investment Solutions Group at Prudential Financial. Prior to Prudential, he held various roles at The Hartford, including managing director in its Investment Advisory Group. In these roles, Mr. Wagner was responsible for manager selection, oversight, and asset allocation models. Mr. Wagner began his career in the investment industry in 2001.
Silvant
| Virtus Silvant Large-Cap Growth Stock Fund |
Michael A. Sansoterra (since 2007) Sandeep Bhatia, PhD, CFA (since 2011) |
| Virtus Silvant Small-Cap Growth Stock Fund |
Michael A. Sansoterra (since 2007) Sandeep Bhatia, PhD, CFA (since 2011) |
Sandeep Bhatia, PhD, CFA. Mr. Bhatia currently serves as Managing Director of Silvant. He has been associated with Silvant or an affiliate since 2007. Prior to joining the Adviser, Mr. Bhatia served as a Senior Research Analyst for Eagle Asset Management, focusing on the healthcare sector from 2005 to 2007. He has worked in investment management since 2000.
Michael A. Sansoterra. Mr. Sansoterra currently serves as a Chief Investment Officer of Silvant and as a Vice President of RidgeWorth. Prior to joining the Adviser, Mr. Sansoterra served as Large Cap Diversified Growth Portfolio Manager and Senior Equity Analyst of Principal Global Investors from 2003 to 2007. He has worked in investment management since 1996.
[ WCM
| Virtus WCM International Equity Fund |
Paul R. Black (since 2015) Peter J. Hunkel (since 2015) Michael B. Trigg (since 2015) Kurt R. Winrich, CFA (since 2015) |
Paul R. Black. Mr. Black currently serves as President and co-CEO of WCM. He has worked in investment management since 1983.
Peter J. Hunkel. Mr. Hunkel currently serves as Portfolio Manager and Business Analyst of WCM. He has worked in investment management since 1998.
Michael B. Trigg. Mr. Trigg currently serves as Portfolio Manager and Business Analyst of WCM. He has worked in investment management since 2000.
Kurt R. Winrich , CFA. Mr. Winrich currently serves as Chairman and co-CEO of WCM. He has worked in investment management since 1984.]
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[ Zevenbergen
| Virtus Zevenbergen Innovative Growth Stock Fund |
Nancy Zevenbergen (since 2004) Brooke de Boutray (since 2004) Leslie Tubbs (since 2004) Joseph Dennison (since 2015) Anthony Zackery (since 2015) |
Brooke de Boutray , CFA, CIC. Ms. de Boutray joined Zevenbergen in 1992 and has served as Managing Director, Portfolio Manager and Analyst since 2004. She has worked in investment management since 1981.
Joseph Dennison , CFA. Mr. Dennison joined Zevenbergen in 2011 and serves as Associate Portfolio Manager of Virtus Zevenbergen Innovative Growth Stock Fund. He has worked in investment management since 2011.
Leslie Tubbs , CFA, CIC. Ms. Tubbs joined Zevenbergen in 1994 and has served as Managing Director, Portfolio Manager and Analyst since 2004. She has worked in investment management since 1994.
Anthony Zackery , CFA. Mr. Zackery joined Zevenbergen in 2011 and serves as Associate Portfolio Manager of Virtus Zevenbergen Innovative Growth Stock Fund. He has worked in investment management since 2011.
Nancy Zevenbergen , CFA, CIC. Ms. Zevenbergen has served as President and Chief Investment Officer of Zevenbergen since 1987. She has worked in investment management since 1981.]
Please refer to the SAI for additional information about the funds' portfolio managers, including the structure of and method of computing compensation, other accounts they manage and their ownership of shares of the funds.
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Risks Associated with Additional Investment Techniques and Fund Operations
In addition to the Principal Investment Strategies and Risks Related to Principal Investment Strategies, each of the funds listed in the chart below may engage in additional investment techniques that present additional risks to a fund as described below. Those additional investment techniques in which a fund is expected to engage as of the date of this prospectus are indicated in the chart below, although other techniques may be utilized from time to time. The information below the chart describes the additional investment techniques and their risks. Many of the additional investment techniques that a fund may use, as well as other investment techniques that are relied upon to a lesser degree, are more fully described in the SAI.
| Risks |
Virtus
Ceredex Large- Cap Value Equity Fund |
Virtus
Ceredex Mid-Cap Value Equity Fund |
Virtus
Ceredex Small-Cap Value Equity Fund |
Virtus
Silvant Large-Cap Growth Stock Fund |
Virtus
Silvant Small-Cap Growth Stock Fund |
Virtus Zevenbergen
Innovative Growth Stock Fund |
Virtus WCM
International Equity Fund |
Virtus
Conservative Allocation Strategy Fund |
Virtus
Growth Allocation Strategy Fund |
| Cybersecurity | X | X | X | X | X | X | X | X | X |
| Mutual Fund Investing | X | X | X | X | X | X | X | X | X |
| Operational | X | X | X | X | X | X | X | X | X |
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In order to determine which investment techniques apply to a fund, please refer to the table above.
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Cybersecurity
With the increased use of technologies such as the Internet to conduct business, the funds have become potentially more susceptible to operational and information security risks through breaches in cybersecurity. In general, a breach in cybersecurity can result from either a deliberate attack or an unintentional event. Cybersecurity breaches may involve, among other things, infection by computer viruses or other malicious software code or unauthorized access to the digital information systems, networks or devices of the funds or their service providers (including, but not limited to, the funds’ investment adviser, transfer agent, custodian, administrators and other financial intermediaries) through “hacking” or other means, in each case for the purpose of misappropriating assets or sensitive information (including, for example, personal shareholder information), corrupting data or causing operational disruption or failures in the physical infrastructure or operating systems that support the funds. Any such cybersecurity breaches or losses of service may cause the funds to lose proprietary information, suffer data corruption or lose operational capacity, which, in turn, could cause the funds to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss. While the funds and their service providers have established business continuity plans and risk management systems designed to prevent or reduce the impact of cybersecurity attacks, there are inherent limitations in such plans and systems due in part to the ever-changing nature of technology and cybersecurity attack tactics, and there is a possibility that certain risks have not been adequately identified or prepared for. Cybersecurity risks may also impact issuers of securities in which the funds invest, which may cause the funds’ investments in such issuers to lose value.
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Mutual Fund Investing
Through its investments in other mutual funds, a fund is exposed not only to the risks of the underlying funds’ investments but also to certain additional risks. Assets invested in other mutual funds incur a layering of expenses, including operating costs, advisory fees and administrative fees that you, as a shareholder in the fund, indirectly bear. Such fees and expenses may exceed the fees and expenses the fund would have incurred if it invested in the underlying fund’s assets
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directly. To the extent that the expense ratio of an underlying fund changes, the weighted average operating expenses borne by the fund may increase or decrease. An underlying fund may change its investment objective or policies without the approval of the fund, and the fund might be forced to withdraw its investment from the underlying fund at a time that is unfavorable to the fund. If a fund invests in closed-end funds, it may incur added expenses such as additional management fees and trading costs and additional risks associated with trading at a discount to NAV and use of leverage.
Operational
An investment in a fund, like any mutual fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers. The occurrence of any of these failures, errors or breaches could result in a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a material adverse effect on a fund. While the funds seek to minimize such events through controls and oversight, there may still be failures that could cause losses to a fund.
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How is the Share Price determined?
Each fund calculates a share price for each class of its shares. The share price (net asset value or “NAV”) for each class is based on the net assets of the fund and the number of outstanding shares of that class. In general, each fund calculates a share price for each class by:
| · | adding the values of all securities and other assets of the fund; |
| · | subtracting liabilities; and |
| · | dividing the result by the total number of outstanding shares of that class. |
Assets: Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded, or, if no closing price is available, at the last bid price. Shares of other investment companies are valued at such companies’ NAVs. Debt securities (other than short-term investments) are valued on the basis of broker quotations or valuations provided by a pricing service, which in determining value utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Other assets, such as accrued interest, accrued dividends and cash are also included in determining a fund’s NAV. As required, some securities and assets are valued at fair value as determined in good faith by, or under the direction of, the Board of Trustees.
For each of Virtus Conservative Allocation Strategy Fund and Virtus Growth Allocation Strategy Fund, the fund’s assets may consist primarily of shares of underlying mutual funds, if any, which are valued at their respective NAVs, and ETFs, which are value at current market price. To determine NAV, the fund and each underlying mutual fund values its assets at market value. Equity securities held by the underlying affiliated mutual funds or directly by the funds, and ETFs held directly by the funds, are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded, or, if no closing price is available, at the last bid price. Debt securities (other than short-term investments) held by the underlying affiliated mutual funds or directly by the funds are valued on the basis of broker quotations or valuations provided by a pricing service, which in determining value utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities. Securities held by any underlying unaffiliated mutual funds will be valued as set forth in the respective prospectuses of the underlying unaffiliated funds. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. As required, some securities and assets held by any underlying affiliated mutual funds or directly by the funds are valued at fair value as determined in good faith by, or under the direction of, the Board of Trustees. Other assets, such as accrued interest, accrued dividends and cash are also included in determining the fund’s NAV.
Liabilities: Accrued liabilities for class-specific expenses (if any), distribution fees, service fees and other liabilities are deducted from the assets of each class. Accrued expenses and liabilities
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that are not class-specific (such as management fees) are allocated to each class in proportion to each class’s net assets except where an alternative allocation can be more appropriately made.
Net Asset Value (NAV): The liabilities allocated to a class are deducted from the proportionate interest of such class in the assets of the applicable fund. The resulting amount for each class is then divided by the number of shares outstanding of that class to produce each class’s NAV per share.
The NAV per share of each class of each fund is determined as of the close of regular trading (normally 4:00 PM Eastern time) on days when the New York Stock Exchange (“NYSE”) is open for trading. A fund will not calculate its NAV per share class on days when the NYSE is closed for trading. If a fund (or underlying fund, as applicable) holds securities that are traded on foreign exchanges that trade on weekends or other holidays when the funds do not price their shares, the NAV of the fund’s shares may change on days when shareholders will not be able to purchase or redeem the fund’s shares.
How are securities fair valued?
If market quotations are not readily available or available prices are not reliable, the funds (or underlying fund, as applicable) determine a “fair value” for an investment according to policies and procedures approved by the Board of Trustees. The types of assets for which such pricing might be required include: (i) securities whose trading has been suspended; (ii) securities where the trading market is unusually thin or trades have been infrequent; (iii) debt securities that have recently gone into default and for which there is no current market quotation; (iv) a security whose market price is not available from an independent pricing source and for which otherwise reliable quotes are not available; (v) securities of an issuer that has entered into a restructuring; (vi) a security whose price as provided by any pricing source does not, in the opinion of the adviser/subadviser, reflect the security’s market value; (vii) foreign securities subject to trading collars for which no or limited trading takes place; (viii) securities where the market quotations are not readily available as a result of “significant” events; and (ix) securities whose principal exchange or trading market is closed for an entire business day on which a fund needs to determine its NAV. This list is not inclusive of all situations that may require a security to be fair valued, nor is it intended to be conclusive in determining whether a specific event requires fair valuation.
The value of any portfolio security held by a fund for which market quotations are not readily available shall be determined in good faith and in a manner that assesses the security’s “fair value” on the valuation date (i.e., the amount that the fund might reasonably expect to receive for the security upon its current sale), based on a consideration of all available facts and all available information, including, but not limited to, the following: (i) the fundamental analytical data relating to the investment; (ii) the value of other relevant financial instruments, including derivative securities, traded on other markets or among dealers; (iii) an evaluation of the forces which influence the market in which these securities are purchased and sold ( e.g. , the existence of merger proposals or tender offers that might affect the value of the security); (iv) the type of the security; (v) the size of the holding; (vi) the initial cost of the security; (vii) trading volumes on markets, exchanges or among broker-dealers; (viii) price quotes from dealers and/or pricing
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services; (ix) values of baskets of securities traded on other markets, exchanges, or among dealers; (x) changes in interest rates; (xi) information obtained from the issuer, analysts, other financial institutions and/or the appropriate stock exchange (for exchange traded securities); (xii) an analysis of the company’s financial statements; (xiii) government (domestic or foreign) actions or pronouncements; (xiv) recent news about the security or issuer; (xv) whether two or more dealers with whom the adviser/subadviser regularly effects trades are willing to purchase or sell the security at comparable prices; and (xvi) other news events or relevant matters.
Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets close (where the security is principally traded) and the time that the fund calculates its NAV (generally, the close of regular trading on the NYSE) that may impact the value of securities traded in these foreign markets. In such cases, information from an external vendor may be utilized to adjust closing market prices of certain foreign common stocks to reflect their fair value. Because the frequency of significant events is not predictable, fair valuation of certain foreign common stocks may occur on a frequent basis.
The value of a security, as determined using the funds’ fair valuation procedures, may not reflect such security’s market value.
At what price are shares purchased?
All investments received by the funds’ authorized agents in good order prior to the close of regular trading on the NYSE (normally 4:00 PM Eastern time) will be executed based on that day’s NAV; investments received by the funds’ authorized agent in good order after the close of regular trading on the NYSE will be executed based on the next business day’s NAV. Shares credited to your account from the reinvestment of a fund’s distributions will be in full and fractional shares that are purchased at the closing NAV on the next business day on which the fund’s NAV is calculated following the dividend record date.
What are the classes and how do they differ?
Each fund offers multiple classes of shares. Each class of shares has different sales and distribution charges. (See “Fund Fees and Expenses” in each fund’s “Fund Summary,” previously in this prospectus.) For certain classes of shares, the funds have adopted distribution and service plans allowed under Rule 12b-1 of the Investment Company Act of 1940, as amended, that authorize the funds to pay distribution and service fees ("Rule 12b-1 Fees") for the sale of their shares and for services provided to shareholders.
The Rule 12b-1 Fees paid by each class of the fund currently are as follows:
| Fund | Class A | Class C | Class I | Class IS | Class T |
| Virtus Ceredex Large-Cap Value Equity Fund | 0.25% | 1.00% | None | None | 0.25% |
| Virtus Ceredex Mid-Cap Value Equity Fund | 0.25% | 1.00% | None | None | 0.25% |
| Virtus Ceredex Small-Cap Value Equity Fund | 0.25% | 1.00% | None | N/A | 0.25% |
| Virtus Silvant Large-Cap Growth Stock Fund | 0.25% | 1.00% | None | None | 0.25% |
| Virtus Silvant Small-Cap Growth Stock Fund | 0.25% | 1.00% | None | None | 0.25% |
| Virtus Zevenbergen Innovative Growth Stock Fund | 0.25% | N/A | None | N/A | 0.25% |
| Virtus WCM International Equity Fund | 0.25% | N/A | None | None | 0.25% |
| Virtus Conservative Allocation Strategy Fund | 0.25% | 1.00% | None | N/A | 0.25% |
| Virtus Growth Allocation Strategy Fund | 0.25% | 1.00% | None | N/A | 0.25% |
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What arrangement is best for you?
The different classes of shares permit you to choose the method of purchasing shares that is most beneficial to you. In choosing a class of shares, consider the amount of your investment, the length of time you expect to hold the shares, whether you decide to receive distributions in cash or to reinvest them in additional shares, and any other personal circumstances. Depending upon these considerations, the accumulated distribution and service fees and contingent deferred sales charges of one class of shares may be more or less than the initial sales charge and accumulated distribution and service fees of another class of shares bought at the same time. Because distribution and service fees are paid out of a fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
Your financial representative should recommend only those arrangements that are suitable for you based on known information. In certain instances, you may be entitled to a reduction or waiver of sales charges. For instance, you may be entitled to a sales charge discount on Class A Shares and Class T Shares if you purchase more than certain breakpoints.
To determine your eligibility for a sales charge discount on Class A Shares, you may aggregate all of your accounts (including joint accounts, retirement accounts such as individual retirement accounts (“IRAs”), non-IRAs, etc.) and those of your spouse, domestic partner, children and minor grandchildren.
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares directly from the fund or through a financial intermediary. Different intermediaries may impose different sales charges (including partial reduction in or waivers of sales charges) other than those listed in this section. Such intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” Appendix A is incorporated herein by reference (and is legally part of this prospectus).
Your financial representative may request that you provide an account statement or other holdings information to determine your eligibility for a breakpoint and/or waiver and to make certain all involved parties have the necessary data. In all instances, it is the purchaser’s responsibility to notify the fund or the purchaser’s financial representative at the time of purchase of any relationship or other facts qualifying the purchaser for sales charge waivers or discounts. For waivers and discounts not available through a particular intermediary, in order to receive these waivers or discounts shareholders will have to purchase fund shares through another intermediary offering such waivers or discounts or directly from the fund if the fund offers such waivers or discounts.
Additional information about the classes of shares offered, sales charges, breakpoints and discounts follows in this section and also may be found in the SAI in the section entitled “How to Buy Shares.” Intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” This information is available free of charge, and in a clear and prominent format, at the [Individual Investors] section of virtus.com. Please be sure that you fully understand these choices before investing. If you or your financial representative requires additional assistance, you may also contact [Virtus Fund Services] by calling toll-free [800-243-1574].
Class A Shares. If you purchase Class A Shares, you will pay a sales charge at the time of purchase equal to the following: for Virtus Conservative Allocation Strategy Fund, 4.75% of the offering price (4.99% of the amount invested); and for the other funds, 5.75% of the offering price (6.10% of the amount invested). The sales charge may be reduced or waived under certain conditions. (See “Initial Sales Charge Alternative—Class A Shares” and “Class A Sales Charge Reductions and Waivers” below.) Generally, Class A Shares are not subject to any charges by the fund when redeemed; however, a contingent deferred sales charge (“CDSC”) may be imposed on certain redemptions within 18 months of a finder's fee being paid. The Distributor may pay broker-dealers a finder's fee for eligible Class A Share purchases in excess
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of $1 million. For Virtus Conservative Allocation Strategy Fund, the CDSC is 0.50%; for all other Virtus Mutual Funds in this prospectus, the CDSC is 1.00%. The 18-month period begins on the last day of the month preceding the month in which the purchase was made, and shares not subject to a finder's fee will be deemed to be redeemed first. Class A Shares have lower distribution and service fees (0.25%) and generally pay higher dividends than Class C Shares.
Class C Shares (Virtus Ceredex Large-Cap Value Equity Fund, Virtus Ceredex Mid-Cap Value Equity Fund, Virtus Ceredex Small-Cap Value Equity Fund, Virtus Silvant Large-Cap Growth Stock Fund, Virtus Silvant Small-Cap Growth Stock Fund, Virtus Conservative Allocation Strategy Fund and Virtus Growth Allocation Strategy Fund only). If you purchase Class C Shares, you will not pay a sales charge at the time of purchase. If you sell your Class C Shares within the first year after they are purchased, you will pay a deferred sales charge of 1%. (See “Deferred Sales Charge Alternative—Class C Shares” below.) Class C Shares have higher distribution and service fees (1.00%) and pay lower dividends than Class A Shares. Class C Shares do not convert to any other class of shares of the funds, so the higher distribution and service fees paid by Class C Shares continue for the life of the account.
Class I Shares. Class I Shares are offered primarily to clients of financial institutions and intermediaries that (i) charge such clients an ongoing fee for advisory, investment, consulting or similar services; or (ii) have entered into an agreement with the funds’ distributor to offer Class I Shares through a no-load network or platform. Such clients may include pension and profit sharing plans, other employee benefit trusts, endowments, foundations and corporations. Class I Shares are also offered to private and institutional clients of, or referred by, the adviser, a subadviser or their affiliates, and to Trustees of the funds and trustees/directors of affiliated open- and closed-end funds, and directors, officers and employees of Virtus and its affiliates. If you are eligible to purchase and do purchase Class I Shares, you will pay no sales charge at any time. There are no distribution and service fees applicable to Class I Shares.
Class IS Shares. Class IS Shares are offered to the following investors (provided that they do not require or receive any compensation, administrative payments, sub-transfer agency payments or service payments with respect to Class IS Shares) without a minimum initial investment: (i) qualified retirement plans, including, but not limited to, 401(k) plans, 457 plans, employer sponsored 403(b) plans, defined benefit plans and other accounts or plans whereby Class IS Shares are held on the books of a fund through plan level or omnibus accounts; (ii) banks and trust companies; (iii) insurance companies; (iv) registered investment companies; and (v) non-qualified deferred compensation plans. Other institutional investors may be permitted to purchase Class IS Shares subject to management’s determination of eligibility and may be subject to a $2,500,000 minimum initial investment requirement. The minimum initial investment amount may be waived subject to management’s discretion, and/or purchased by or through: (i) certain registered open-end investment companies whose shares are distributed by the Distributor; (ii) accounts held by, or for the benefit of, an affiliate of a fund; or (iii) investments made in connection with certain reorganizations as approved by a fund’s investment adviser. If you are eligible to purchase and do purchase Class IS Shares, you will pay no sales charge at any time. There are no distribution and service fees applicable to Class IS Shares.
Class T Shares. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
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Initial Sales Charge Alternative—Class A Shares
The public offering price of Class A Shares is the NAV plus a sales charge that varies depending on the size of your purchase. (See “Class A Shares—Reduced Initial Sales Charges” in the SAI.) Shares purchased based on the automatic reinvestment of income dividends or capital gain distributions are not subject to any sales charges. The sales charge is divided between your investment dealer and the fund's underwriter, VP Distributors, LLC (“VP Distributors” or the “Distributor”).
Sales Charge you may pay to purchase Class A Shares
Virtus Conservative Allocation Strategy Fund
| Sales Charge as a percentage of | ||
| Amount of Transaction at Offering Price | Offering Price | Net Amount Invested |
| Under $50,000 | 4.75% | 4.99% |
| $50,000 but under $100,000 | 4.50 | 4.71 |
| $100,000 but under $250,000 | 3.50 | 3.63 |
| $250,000 but under $500,000 | 2.50 | 2.56 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 |
| $1,000,000 or more | None | None |
All Other Funds
| Sales Charge as a percentage of | ||
| Amount of Transaction at Offering Price | Offering Price | Net Amount Invested |
| Under $50,000 | 5.75% | 6.10% |
| $50,000 but under $100,000 | 4.75 | 4.99 |
| $100,000 but under $250,000 | 3.75 | 3.90 |
| $250,000 but under $500,000 | 2.50 | 2.56 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 |
| $1,000,000 or more | None | None |
Class A Sales Charge Reductions and Waivers
Investors may qualify for reduced or no initial (front-end) sales charges, as shown in the table above, through utilization of Combination Purchase Privilege, Letter of Intent, Right of Accumulation, Gifting of Shares, Purchase by Associations or the Account Reinstatement Privilege. These programs are summarized below and are described in greater detail in the SAI. These reductions and waivers do not apply to any CDSC that may be applied to certain Class A Share redemptions.
Combination Purchase Privilege. Your purchase of any class of shares of these funds or any other Virtus Mutual Fund, if made at the same time by the same person, will be added together with any existing Virtus Mutual Fund account values to determine whether the combined sum entitles you to an immediate reduction in sales charges. A “person” is defined in this and the following sections as either: (a) any individual, his or her spouse or domestic partner, children and minor grandchildren purchasing shares for his, her or their own account (including an IRA account), including his, her or their own sole proprietorship or trust where any of the above is a named beneficiary; (b) a trustee or other fiduciary purchasing for a single trust, estate or single
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fiduciary account (even though more than one beneficiary may exist); (c) multiple accounts (up to 200) under a qualified employee benefit plan or administered by a third party administrator; or (d) trust companies, bank trust departments, registered investment advisers, and similar entities placing orders or providing administrative services with respect to accounts over which they exercise discretionary investment authority and which are held in a fiduciary, agency, custodial or similar capacity, provided all shares are held of record in the name, or nominee name, of the entity placing the order.
Letter of Intent. If you sign a Letter of Intent, your purchase of any class of shares of these funds or any other Virtus Mutual Fund, if made by the same person within a 13-month period, will be added together to determine whether you are entitled to an immediate reduction in sales charges. Sales charges are reduced based on the overall amount you indicate that you will buy under the Letter of Intent. The Letter of Intent is a mutually non-binding arrangement between you and Virtus Mutual Funds. Shares worth 5% of the amount of each purchase will be held in escrow (while remaining registered in your name) to secure payment of the higher sales charges applicable to the shares actually purchased in the event the full intended amount is not purchased.
Right of Accumulation. The value of your account(s) in any class of shares of these funds or any other Virtus Mutual Fund, if made over time by the same person, may be added together at the time of each purchase to determine whether the combined sum entitles you to a prospective reduction in sales charges. You must provide certain account information to Virtus Mutual Funds or their agents at the time of purchase to exercise this right.
Gifting of Shares. If you make a gift of shares of a Virtus Mutual Fund, upon your request you may combine purchases, if made at the same time, of any class of shares of these funds or any other Virtus Mutual Fund at the sales charge discount allowed for the combined purchase. The receiver of the gift may also be entitled to a prospective reduction in sales charges in accordance with the funds’ right of accumulation or other provisions. You or the receiver of the gift must provide certain account information to Virtus Mutual Funds or their agents at the time of purchase to exercise this right.
Purchase by Associations. Certain groups or associations may be treated as a “person” and qualify for reduced Class A Share sales charges. The group or association must: (1) have been in existence for at least six months; (2) have a legitimate purpose other than to purchase mutual fund shares at a reduced sales charge; (3) work through an investment dealer; and (4) not be a group whose sole reason for existing is to consist of members who are credit card holders of a particular company, policyholders of an insurance company, customers of a bank or a broker-dealer or clients of an investment adviser.
Account Reinstatement Privilege. Subject to the funds’ policies and procedures regarding market timing, for 180 days after you sell your Class A Shares on which you previously paid a sales charge, you may purchase Class A Shares of any Virtus Mutual Fund at NAV, with no sales charge, by reinvesting all or part of your proceeds, but not more.
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Sales at Net Asset Value. In addition to the programs summarized above, the funds may sell their Class A Shares at NAV without an initial sales charge to certain types of accounts or account holders, including, but not limited to: trustees of the Virtus Mutual Funds; directors, officers, employees and sales representatives of the adviser, a subadviser or the Distributor and corporate affiliates of the adviser, a subadviser or the Distributor; private clients of an adviser or subadviser to any of the Virtus Mutual Funds; registered representatives and employees of dealers with which the Distributor has sales agreements; and certain qualified employee benefit plans, endowment funds or foundations. Please see the SAI for more information about qualifying for purchases of Class A Shares at NAV.
Contingent Deferred Sales Charge you may pay on Class A Shares
Investors buying Class A Shares on which a finder’s fee has been paid may incur a CDSC if they redeem their shares within 18 months of purchase. For Virtus Conservative Allocation Strategy Fund, the CDSC is 0.50%; for all other Virtus Mutual Funds in this prospectus, the CDSC is 1.00%. The 18-month period begins on the last day of the month preceding the month in which the purchase was made, and shares not subject to a finder’s fee will be deemed to be redeemed first. The CDSC will be multiplied by the then current market value or the initial cost of the shares being redeemed, whichever is less.
Class A and Class C Shares Sales Charge Reductions and Waivers
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares through a financial intermediary offering them. Different intermediaries may impose different sales charges (including partial reduction in or waivers of sales charges) other than those listed in this section, provided that they do not exceed the maximum sales charge listed. Such intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” Appendix A is incorporated herein by reference (and is legally part of this prospectus).
Deferred Sales Charge Alternative—Class C Shares
Class C Shares are purchased without an initial sales charge; however, shares sold within one year of purchase are subject to a CDSC of 1.00%. The sales charge will be multiplied by the then current market value or the initial cost of the shares being redeemed, whichever is less. No sales charge will be imposed on increases in NAV or on shares purchased through the reinvestment of income dividends or capital gain distributions. To minimize the sales charge, shares not subject to any charge will be redeemed first, followed by shares held the longest time. The date of purchase will be used to calculate the number of shares owned and time period held.
Deferred Sales Charge you may pay to sell Class C Shares
| Year | 1 | 2+ | |||||
| CDSC | 1% | 0% |
Class A and Class C Shares—Waiver of Deferred Sales Charges
The CDSC is waived on the redemption (sale) of Class A and Class C Shares under certain limited circumstances, such as a redemption
| (a) | occurring within one year of the death of a shareholder, beneficiary of a custodial account or grantor of a trust account |
| (b) | within one year of disability of a shareholder |
| (c) | as a mandatory distribution under certain qualified retirement plans |
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| (d) | by 401(k) plans meeting certain criteria |
| (e) | based on the exercise of exchange privileges among Virtus Mutual Funds |
| (f) | based on any direct rollover transfer of shares meeting certain criteria |
| (g) | based on the systematic withdrawal program, subject to certain restrictions. |
Please refer to the SAI (see “Waiver of Deferred Sales Charges”) for additional detail about each of these waiver provisions.
Compensation to Dealers
Class A Shares, Class C Shares, Class I Shares and Class IS Shares Only
Dealers with whom the Distributor has entered into sales agreements receive a discount or commission on Class A Shares as described below.
Virtus Conservative Allocation Strategy Fund
| Amount of Transaction at Offering Price |
Sales Charge
as a
Percentage of Offering Price |
Sales Charge
as a
Percentage of Amount Invested |
Dealer Discount
as
a Percentage of Offering Price |
| Under $50,000 | 4.75% | 4.99% | 4.00% |
| $50,000 but under $100,000 | 4.50 | 4.71 | 3.75 |
| $100,000 but under $250,000 | 3.50 | 3.63 | 2.75 |
| $250,000 but under $500,000 | 2.50 | 2.56 | 2.00 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 | 1.75 |
| $1,000,000 or more | None | None | None (1) |
(1) While investments of more than $1,000,000 are not subject to a front-end sales charge, dealers may receive commissions ranging from 0.25% to 0.50% on such purchases. Merrill Lynch receives an additional 0.25% of the front-end sales charge of Class A Shares of certain funds. Dealer commissions on investments of over $1,000,000 are paid on a tiered basis as follows:
| Trade Amount | Payout to Dealer |
| $1,000,000 - $2,999,999 | 0.50% |
| $3,000,000 - $49,999,999 | 0.25% |
| $50,000,000 or more | 0.25% |
All Other Funds
| Amount of Transaction at Offering Price |
Sales Charge
as a
Percentage of Offering Price |
Sales Charge
as a
Percentage of Amount Invested |
Dealer Discount
as
a Percentage of Offering Price |
| Under $50,000 | 5.75% | 6.10% | 5.00% |
| $50,000 but under $100,000 | 4.75 | 4.99 | 4.25 |
| $100,000 but under $250,000 | 3.75 | 3.90 | 3.25 |
| $250,000 but under $500,000 | 2.75 | 2.83 | 2.25 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 | 1.75 |
| $1,000,000 or more | None | None | None (1) |
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(1) While investments of more than $1,000,000 are not subject to a front-end sales charge, dealers may receive commissions ranging from 0.25% to [0.75%/1.00%] on such purchases. Merrill Lynch receives an additional 0.25% of the front-end sales charge of Class A Shares of certain funds. Dealer commissions on investments of over $1,000,000 are paid on a tiered basis as follows:
| Trade Amount | Payout to Dealer |
| $1,000,000 - $2,999,999 | 0.75% |
| $3,000,000 - $49,999,999 | 0.25% |
| $50,000,000 or more | 0.25% |
With respect to Class C Shares, the Distributor intends to pay investment dealers a sales commission of 1% of the sale price of Class C Shares sold by such dealers. Your broker, dealer or financial advisor may also charge you additional commissions or fees for their services in selling shares to you provided they notify the Distributor of their intention to do so.
Dealers and other entities that enter into special arrangements with the Distributor or the funds’ transfer agent, Virtus Fund Services, LLC (the “Transfer Agent”), may receive compensation for the sale and promotion of shares of these funds. Such fees are in addition to the sales commissions referenced above and may be based upon the amount of sales of fund shares by a dealer; the provision of assistance in marketing of fund shares; access to sales personnel and information dissemination services; and other criteria as established by the Distributor. Depending on the nature of the services, these fees may be paid either from the funds through distribution fees, service fees or, in some cases, the Distributor may pay certain fees from its own profits and resources.
Dealers and other entities that enter into special arrangements with the Distributor or the funds’ transfer agent may receive compensation from or on behalf of the funds for providing certain recordkeeping and related services to the funds or their shareholders. These fees may also be referred to as shareholder accounting fees, administrative services fees, sub-transfer agent fees or networking fees. They are not for the sale, promotion or marketing of fund shares.
From its own profits and resources, the Distributor may, from time to time, make payments to qualified wholesalers, registered financial institutions and third party marketers for marketing support services and/or retention of assets. These payments are sometimes referred to as “revenue sharing.” Among others, the Distributor has agreed to make such payments for marketing support services to AXA Advisors, LLC. Additionally, for Virtus Conservative Allocation Strategy Fund, the Distributor may pay broker-dealers a finder’s fee in an amount equal to 0.50% of eligible Class A Share purchases from $1,000,000 to $3,000,000 and 0.25% on amounts greater than $3,000,000. For all other Virtus Mutual Funds in this prospectus, the Distributor may pay broker-dealers a finder’s fee in an amount equal to 1.00% of eligible Class A Share purchases from $1,000,000 to $3,000,000, 0.50% on amounts of $3,000,001 to $10,000,000, and 0.25% on amounts greater than $10,000,000. Purchases of Class A Shares by an account in the name of a qualified employee benefit plan are eligible for a finder’s fee only if
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such plan has at least 100 eligible employees. A CDSC may be imposed on certain redemptions of such Class A investments within 18 months of purchase. For Virtus Conservative Allocation Strategy Fund, the CDSC is 0.50%; for all other Virtus Mutual Funds in this prospectus, the CDSC is 0.75%. For purposes of determining the applicability of the CDSC, the 18-month period begins on the last day of the month preceding the month in which the purchase was made. The Distributor will also pay broker-dealers a service fee of 0.25% beginning in the thirteenth month following purchase of Class A Shares on which a finder’s fee has been paid. VP Distributors reserves the right to discontinue or alter such fee payment plans at any time.
From its own resources or pursuant to the distribution and shareholder servicing plans, and subject to the dealers’ prior approval, the Distributor may provide additional compensation to registered representatives of dealers in the form of travel expenses, meals, and lodging associated with training and educational meetings sponsored by the Distributor. The Distributor may also provide gifts amounting in value to less than $100, and occasional meals or entertainment, to registered representatives of dealers. Any such travel expenses, meals, lodging, gifts or entertainment paid will not be preconditioned upon the registered representatives’ or dealers’ achievement of a sales target. The Distributor may, from time to time, reallow the entire portion of the sales charge on Class A Shares which it normally retains to individual selling dealers. However, such additional reallowance generally will be made only when the selling dealer commits to substantial marketing support such as internal wholesaling through dedicated personnel, internal communications and mass mailings.
The Distributor has also agreed to pay fees to certain distributors for preferred marketing opportunities. These arrangements may be viewed as creating a conflict of interest between these distributors and investors. Investors should make due inquiry of their selling agents to ensure that investors are receiving the requisite point of sale disclosures and suitable recommendations free of any influence by reason of these arrangements.
The categories of payments the Distributor and/or the Transfer Agent may make to other parties are not mutually exclusive, and such parties may receive payments under more than one or all categories. These payments could be significant to a party receiving them, creating a conflict of interest for such party in making investment recommendations to investors. Investors should make due inquiry of any party recommending the funds for purchase to ensure that such investors are receiving the requisite point of sale disclosures and suitable recommendations free of any influence by reason of these arrangements.
A document containing information about sales charges, including breakpoint (volume) discounts, is available free of charge on the Internet at [http://virtus.com] . In the Individual Investors section, go to the tab “Investors Knowledge Base” and click on the link for Breakpoint (Volume) Discounts.
Class IS Shares Only
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s
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resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Class T Shares Only
| Amount of Transaction at Offering Price |
Sales Charge as
Percentage of Offering Price |
Sales Charge as a Percentage of Amount Invested | Dealer Discount as a Percentage of Offering Price |
| Under $250,000 | 2.50% | 2.56% | 2.50% |
| $250,000 but under $500,000 | 2.00% | 2.04% | 2.00% |
| $500,000 but under $1,000,000 | 1.50% | 1.52% | 1.50% |
| $1,000,000 or more | 1.00% | 1.01% | 1.00% |
Opening an Account
Class A Shares, Class C Shares and Class I Shares Only
Your financial advisor can assist you with your initial purchase as well as all phases of your investment program. If you are opening an account by yourself, please follow the instructions outlined below.
The funds have established the following preferred methods of payment for fund shares:
| · | Checks drawn on an account in the name of the investor and made payable to Virtus Mutual Funds; |
| · | Checks drawn on an account in the name of the investor’s company or employer and made payable to Virtus Mutual Funds; or |
| · | Wire transfers or Automated Clearing House (“ACH”) transfers from an account in the name of the investor, or the investor’s company or employer. |
Payment in other forms may be accepted at the discretion of the funds; however, the funds generally do not accept such other forms of payment as cash equivalents (such as traveler’s checks, cashier’s checks, money orders or bank drafts), starter checks, credit card convenience checks, or certain third party checks. Please specify the name(s) of the fund or funds in which you would like to invest on the check or transfer instructions.
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. Accordingly, when you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may check the information you provide against publicly available databases, information obtained from consumer reporting agencies, other financial institutions or other sources. If, after reasonable effort, we cannot verify your identity, we reserve the right to close the account and redeem the shares at the NAV next calculated after the decision is made by us to close the account.
Step 1.
Your first choice will be the initial amount you intend to invest in each fund.
Minimum initial investments applicable to Class A and Class C Shares:
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| · | $100 for individual retirement accounts (“IRAs”), accounts that use the systematic exchange privilege, or accounts that use the Systematic Purchase program. (See Investor Services and Other Information for additional details.) |
| · | There is no initial dollar requirement for defined contribution plans, asset-based fee programs, profit-sharing plans, or employee benefit plans. There is also no minimum for reinvesting dividends and capital gains into another account. |
| · | $2,500 for all other accounts. |
Minimum additional investments applicable to Class A and Class C Shares:
| · | $100 for any account. |
| · | There is no minimum additional investment requirement for defined contribution plans, asset-based fee programs, profit-sharing plans, or employee benefit plans. There is also no minimum additional investment requirement for reinvesting dividends and capital gains into another account. |
Minimum initial investments applicable to Class I Shares:
| · | $100,000 for any account for qualified investors. (Call Virtus Mutual Funds at 888-784-3863 for additional details.) |
There is no minimum additional investment requirement applicable to Class I shares.
Step 2.
Your second choice will be what class of shares to buy. Each share class, except Class I Shares, has different sales and distribution charges. Because all future investments in your account will be made in the share class you choose when you open your account, you should make your decision carefully. Your financial advisor can help you pick the share class that makes the most sense for your situation.
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Step 3.
Your next choice will be how you want to receive any dividends and capital gain distributions. Your options are:
| · | Receive both dividends and capital gain distributions in additional shares; |
| · | Receive dividends in additional shares and capital gain distributions in cash; |
| · | Receive dividends in cash and capital gain distributions in additional shares; or |
| · | Receive both dividends and capital gain distributions in cash. |
No interest will be paid on uncashed distribution checks.
Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to open an account and buy Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes
The funds reserve the right to refuse any purchase order for any reason. The fund will notify the investor of any such rejection in accordance with industry and regulatory standards, which is generally within three business days.
Class A Shares, Class C Shares and Class I Shares Only
| To Open An Account | |
| Through a financial advisor | Contact your advisor. Some advisors may charge a fee and may set different minimum investments or limitations on buying shares. |
| Through the mail | Complete a new account application and send it with a check payable to the fund. Mail them to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. |
| Through express delivery | Complete a new account application and send it with a check payable to the fund. Send them to: Virtus Mutual Funds, [30 Dan Road, Canton, MA 02021]. |
| By Federal Funds wire | Call us at 888-784-3863. |
| By Systematic Purchase | Complete the appropriate section on the application and send it with your initial investment payable to the fund. Mail them to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053.] |
| By telephone exchange | Call us at 888-784-3863. |
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Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to buy Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes
The price at which a purchase is effected is based on the NAV next determined after receipt of a purchase order in good order by the funds’ Transfer Agent or an authorized agent. A purchase order is generally in “good order” if an acceptable form of payment accompanies the purchase order and the order includes the appropriate application(s) and/or other form(s) and any supporting legal documentation required by the fund's Transfer Agent or an authorized agent, each in legible form.
Each fund reserves the right to refuse any order that may disrupt the efficient management of that fund.
Class A Shares, Class C Shares and Class I Shares Only
| To Sell Shares | |
| Through a financial advisor | Contact your advisor. Some advisors may charge a fee and may set different minimums on redemptions of accounts. |
| Through the mail | Send a letter of instruction to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. Be sure to include the registered owner’s name, fund and account number and number of shares or dollar value you wish to sell. |
| Through express delivery | Send a letter of instruction to: Virtus Mutual Funds, [30 Dan Road, Canton, MA 02021]. Be sure to include the registered owner’s name, fund and account number and number of shares or dollar value you wish to sell. |
| By telephone | For sales up to $50,000, requests can be made by calling 888-784-3863. |
| By telephone exchange | Call us at 888-784-3863 . |
| By check (certain fixed income funds only) | If you selected the checkwriting feature, you may write checks for amounts of $250 or more. Checks may not be used to close accounts. Please call us at 888-784-3863 for a listing of funds offering this feature. |
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Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to sell Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes You have the right to have the funds buy back shares at the NAV next determined after receipt of a redemption request in good order by the funds' Transfer Agent or an authorized agent. In the case of a Class C Share redemption, and certain Class A Share redemptions, you will be subject to the applicable contingent deferred sales charge, if any, for such shares. Subject to certain restrictions, shares may be redeemed by telephone or in writing. In addition, shares may be sold through securities dealers, brokers or agents who may charge customary commissions or fees for their services. The funds do not charge any redemption fees. Payment for shares redeemed is generally made within seven days; however, redemption proceeds will not be disbursed until each check used for purchases of shares has been cleared for payment by your bank, which may take up to 15 days after receipt of the check.
Things You Should Know When Selling Shares
You may realize a taxable gain or loss (for federal income tax purposes) if you redeem or exchange shares of the funds.
Class A Shares, Class C Shares, Class I Shares
Redemption requests will not be honored until all required documents, in proper form, have been received. Additional documentation will be required for redemptions by organizations, fiduciaries, or retirement plans, or if a redemption is requested by anyone but the shareholder(s) of record. To avoid delay in redemption or transfer, shareholders having questions about specific requirements should contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
Transfers between broker-dealer “street” accounts are governed by the accepting broker-dealer. Questions regarding this type of transfer should be directed to your financial advisor.
As stated in the applicable account applications, accounts associated with certain types of retirement plans and individual retirement accounts may incur fees payable to the Transfer Agent in the event of redeeming an account in full. Shareholders with questions about this should contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
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Redemptions by Mail
➔ If you are selling shares held individually, jointly, or as custodian under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act:
Send a clear letter of instruction if both of these apply:
| · | The proceeds do not exceed $50,000. |
| · | The proceeds are payable to the registered owner at the address on record. |
Send a clear letter of instructions with a signature guarantee when any of these apply:
| · | You are selling more than $50,000 worth of shares. |
| · | The name or address on the account has changed within the last 30 days. |
| · | You want the proceeds to go to a different name or address than on the account. |
➔ If you are selling shares held in a corporate or fiduciary account, please contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
The signature guarantee, if required, must be a STAMP 2000 Medallion guarantee made by an eligible guarantor institution as defined by the funds’ Transfer Agent in accordance with its signature guarantee procedures. Guarantees using previous technology medallions will not be accepted. As of the date of this prospectus, the Transfer Agent’s signature guarantee procedures generally permit guarantees by banks, broker-dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations.
Selling Shares by Telephone
The Transfer/Sub-transfer Agent will use reasonable procedures to confirm that telephone instructions are genuine. Address and bank account information are verified, redemption instructions are taped, and all redemptions are confirmed in writing.
The individual investor bears the risk from instructions given by an unauthorized third party that the Transfer/Sub-transfer Agent reasonably believed to be genuine.
The Transfer Agent may modify or terminate the telephone redemption privilege at any time with 60 days’ notice to shareholders, except for instances of disruptive trading or market timing; in such cases, the telephone redemption privilege may be suspended immediately, followed by written notice. (See “Disruptive Trading and Market Timing” in this prospectus.)
During times of drastic economic or market changes, telephone redemptions may be difficult to make or temporarily suspended; however, shareholders will be able to make redemptions through other methods described above.
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Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to know when selling sell Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes
Payment of Redemptions In Kind
Each fund reserves the right to pay large redemptions “in kind” (i.e., in securities owned by the fund) rather than in cash. Large redemptions are those that exceed $250,000 or 1% of the fund’s net assets, whichever is less, over any 90-day period. Additional documentation will be required for redemptions by organizations, fiduciaries, or retirement plans, or if a redemption is requested by anyone but the shareholder(s) of record. Investors who are paid redemption proceeds in kind will receive a pro rata share of the fund’s portfolio, which may include illiquid securities. Any securities received remain at market risk until sold. Brokerage commissions and capital gains may be incurred when converting securities received into cash. On any illiquid securities received, the investor will bear the risk of not being able to sell the securities at all.
Account Reinstatement Privilege
Subject to the funds’ policies and procedures regarding market timing, for 180 days after you sell your Class A Shares on which you have previously paid a sales charge, you may purchase Class A Shares of any Virtus Mutual Fund at NAV, with no sales charge, by reinvesting all or part of your proceeds, but not more. Send your written request to Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. You can call the Transfer/Sub-transfer Agent at 888-784-3863 for more information.
Please remember, a redemption and reinvestment are considered to be a sale and purchase for tax-reporting purposes.
Annual Fee on Small Accounts
To help offset the costs associated with maintaining small accounts, the funds reserve the right to assess an annual $25 small account fee on fund accounts with a balance below $2,500. The small account fee may be waived in certain circumstances, such as for accounts that have elected electronic delivery of statements/regulatory documents and accounts owned by shareholders having multiple accounts with a combined value of over $25,000. The small account fee does not apply to accounts held through a financial intermediary.
The small account fee will be collected through the automatic sale of shares in your account. We will send you written notice before we charge the $25 fee so that you may increase your account
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balance above the minimum, sign up for electronic delivery, consolidate your accounts or liquidate your account. You may take these actions at any time by contacting your investment professional or the Transfer Agent.
Redemption of Small Accounts
Due to the high cost of maintaining small accounts, if your redemption activity causes your account balance to fall below $200, you may receive a notice requesting you to bring the balance up to $200 within 60 days. If you do not, the shares in the account will be sold at NAV, and a check will be mailed to the address of record. Any applicable sales charges will be deducted.
Distributions of Small Amounts
Distributions in amounts less than $10 will automatically be reinvested in additional shares of the fund.
Returned Mail
If any correspondence sent by a fund is returned by the postal or other delivery service as “undeliverable,” your dividends or any other distribution may be automatically reinvested in the fund.
Uncashed Checks
If your distribution check is not cashed within six months, the distribution may be reinvested in the fund at the current NAV. You will not receive any interest on uncashed distribution or redemption checks. This provision may not apply to certain retirement or qualified accounts.
Inactive Accounts
As required by the laws of certain states, if no activity occurs in an account within the time period specified by your state law, Virtus may be required to transfer the assets to your state under the state's abandoned property law.
Exchange Privileges
You should read the prospectus of the Virtus Mutual Fund(s) into which you want to make an exchange before deciding to make an exchange. You can obtain a prospectus from your financial advisor; by calling 888-784-3863; or on the Internet at virtus.com .
| · | You generally may exchange shares of one fund for the same class of shares of another fund ( e.g. , Class A Shares for Class A Shares). Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer Agents. |
| · | Exchanges may be made by telephone (888-784-3863) or by mail (Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]). |
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| · | The amount of the exchange must be equal to or greater than the minimum initial investment required, unless the minimum has been waived (as described in the SAI). |
| · | The exchange of shares of one fund for shares of a different fund is treated as a sale of the original fund's shares and any gain on the transaction may be subject to federal income tax. |
| · | In certain circumstances, a fund, the Distributor or the Transfer Agent may enter into an agreement with a financial intermediary to permit exchanges from one class of a fund into another class of the same fund, subject to certain conditions. Such exchanges will only be permitted if, among other things, the financial intermediary agrees to follow procedures established by the fund, Distributor or Transfer Agent, which generally will require that the exchanges be carried out (i) within accounts maintained and controlled by the intermediary, (ii) on behalf of all or a particular segment of beneficial owners holding shares of the affected fund within those accounts, and (iii) all at once or within a given time period, or as agreed upon in writing by the fund, the Distributor or the Transfer Agent and the financial intermediary. A shareholder’s ability to make this type of exchange may be limited by operational or other limitations of his or her financial intermediary or the fund. |
| · | If your financial intermediary exchanges Class A Shares for which you already paid an initial sales charge for Class T Shares, the shares subject to the exchange will not be subject to a sales charge. |
Disruptive Trading and Market Timing
These funds are not suitable for market timers, and market timers are discouraged from becoming investors. Your ability to make exchanges among Virtus Mutual Funds is subject to modification if we determine, in our sole opinion, that your exercise of the exchange privilege may disadvantage or potentially harm the rights or interests of other shareholders.
Frequent purchases, redemptions and exchanges, programmed exchanges, exchanges into and then out of a fund in a short period of time, and exchanges of large amounts at one time may be indicative of market timing and otherwise disruptive trading (“Disruptive Trading”) which can have risks and harmful effects for other shareholders. These risks and harmful effects include:
| · | dilution of the interests of long-term investors, if market timers or others exchange into a fund at prices that are below the true value or exchange out of a fund at prices that are higher than the true value; |
| · | an adverse effect on portfolio management, as determined by the adviser or subadviser in its sole discretion, such as causing a fund to maintain a higher level of cash than would otherwise be the case, or causing a fund to liquidate investments prematurely; and |
| · | reducing returns to long-term shareholders through increased brokerage and administrative expenses. |
Additionally, the nature of the portfolio holdings of certain funds (or the underlying funds as applicable) may expose those funds to investors who engage in the type of market timing trading that seeks to take advantage of possible delays between the change in the value of a mutual
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fund’s portfolio holdings and the reflection of the change in the NAV of the fund’s shares, sometimes referred to as “time-zone arbitrage.” Arbitrage market timers seek to exploit possible delays between the change in the value of a mutual fund’s portfolio holdings and the NAV of the fund’s shares in funds that hold significant investments in foreign securities because certain foreign markets close several hours ahead of the U.S. markets. If an arbitrageur is successful, the value of the fund’s shares may be diluted if redeeming shareholders receive proceeds (and buying shareholders receive shares) based upon NAVs which do not reflect appropriate fair value prices.
In order to attempt to protect our shareholders from the potential harmful effects of Disruptive Trading, the funds’ Board of Trustees has adopted market timing policies and procedures designed to discourage Disruptive Trading. The Board of Trustees has adopted these policies and procedures as a preventive measure to protect all shareholders from the potential effects of Disruptive Trading, while also abiding by any rights that shareholders may have to make exchanges and provide reasonable and convenient methods of making exchanges that do not have the potential to harm other shareholders.
Excessive trading activity is measured by the number of roundtrip transactions in an account. A roundtrip transaction is one where a shareholder buys and then sells, or sells and then buys, shares of any fund within 30 days. Shareholders of the funds are limited to one roundtrip transaction within any rolling 30-day period. Roundtrip transactions are counted at the shareholder level. In considering a shareholder’s trading activity, the funds may consider, among other factors, the shareholder’s trading history both directly and, if known, through financial intermediaries, in the funds, in other funds within the Virtus Mutual Fund complex, in non-Virtus funds or in accounts under common control or ownership. We do not include exchanges made pursuant to the dollar cost averaging or other similar programs when applying our market timing policies. Systematic withdrawal and/or contribution programs, mandatory retirement distributions, and transactions initiated by a plan sponsor also will not count towards the roundtrip limits. The funds may permit exchanges that management believes, in the exercise of their judgment, are not disruptive. The size of the fund and the size of the requested transaction may be considered when determining whether or not the transaction would be disruptive.
Shareholders holding shares for at least 30 days following investment will ordinarily be in compliance with the funds’ policies regarding excessive trading activity. The funds may, however, take action if activity is deemed disruptive even if shares are held longer than 30 days, such as a request for a transaction of an unusually large size. The size of the fund and the size of the requested transaction may be considered when determining whether or not the transaction would be disruptive.
Under our market timing policies, we may modify your exchange privileges for some or all of the funds by not accepting an exchange request from you or from any person, asset allocation service, and/or market timing service made on your behalf. We may also limit the amount that may be exchanged into or out of any fund at any one time, or may revoke your right to make Internet, telephone or facsimile exchanges. We may reinstate Internet, telephone and facsimile exchange privileges after they are revoked, but we will not reinstate these privileges if we have reason to believe that they might be used thereafter for Disruptive Trading.
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The funds currently do not charge exchange or redemption fees, or any other administrative charges on fund exchanges. The funds reserve the right to impose such fees and/or charges in the future.
Orders for the purchase of fund shares are subject to acceptance by the relevant fund. We reserve the right to reject, without prior notice, any exchange request into any fund if the purchase of shares in the corresponding fund is not accepted for any reason.
The funds do not have any arrangements with any person, organization or entity to permit frequent purchases and redemptions of fund shares.
We may, without prior notice, take whatever action we deem appropriate to comply with or take advantage of any state or federal regulatory requirement. The funds reserve the right to reject any purchase or exchange transaction at any time. If we reject a purchase or exchange for any reason, we will notify you of our decision in writing.
The funds cannot guarantee that their policies and procedures regarding market timing will be effective in detecting and deterring all Disruptive Trading.
Retirement Plans
Shares of the funds may be used as investments under the following retirement plans: traditional IRA, rollover IRA, SEP-IRA, SIMPLE IRA, Roth IRA, 401(k) plans, profit-sharing, money purchase plans, and certain 403(b) plans. For more information, call 800-243-4361.
Investor Services and Other Information
Systematic Purchase is a systematic investment plan that allows you to have a specified amount automatically deducted from your checking or savings account and then deposited into your mutual fund account. (Complete the “Systematic Purchase” section on the application and include a voided check.)
Systematic Exchange allows you to automatically move money from one Virtus Mutual Fund to another on a monthly, quarterly, semiannual or annual basis. Shares of one Virtus Mutual Fund will be exchanged for shares of the same class of another Virtus Mutual Fund at the interval you select. (Complete the “Systematic Exchange” section on the application.) Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer Agents.
Telephone Exchange lets you exchange shares of one Virtus Mutual Fund for the same class of shares in another Virtus Mutual Fund, using our customer service telephone number (888-784-3863). (See the “Telephone Exchange” section on the application.) Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer Agents.
Systematic Withdrawal allows you to periodically redeem a portion of your account on a predetermined monthly, quarterly, semiannual, or annual basis. Sufficient shares from your
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account will be redeemed at the closing NAV on the applicable payment date, with proceeds to be mailed to you or sent through ACH to your bank (at your selection). For payments to be mailed, shares will be redeemed on the 15 th of the month so that the payment is made about the 20 th of the month. For ACH payments, you may select the day of the month for the payments to be made; if no date is specified, the payments will occur on the 15 th of the month. The minimum withdrawal is $25, and minimum account balance requirements continue to apply. Shareholders in the program must own Virtus Mutual Fund shares worth at least $5,000.
Disclosure of Fund Portfolio Holdings. A description of the funds' policies and procedures with respect to the disclosure of the funds' portfolio securities is available in the SAI.
The funds plan to make distributions from net investment income at intervals stated in the table below and to distribute net realized capital gains, if any, at least annually.
| Fund | Dividend Paid |
| Virtus Ceredex Large-Cap Value Equity Fund | Annually |
| Virtus Ceredex Mid-Cap Value Equity Fund | Annually |
| Virtus Ceredex Small-Cap Value Equity Fund | Annually |
| Virtus Silvant Large-Cap Growth Stock Fund | Annually |
| Virtus Silvant Small-Cap Growth Stock Fund | Annually |
| Virtus Zevenbergen Innovative Growth Stock Fund | Annually |
| Virtus WCM International Equity Fund | Annually |
| Virtus Conservative Allocation Strategy Fund | Annually |
| Virtus Growth Allocation Strategy Fund | Annually |
Distributions of short-term capital gains (gains on securities held for a year or less) and net investment income are generally taxable to shareholders as ordinary income. Certain distributions of long-term capital gains and certain dividends are taxable at a lower rate than ordinary income. Long-term capital gains, if any, which are distributed to shareholders and which are designated by a fund as capital gain distributions, are taxable to shareholders as long-term capital gain distributions regardless of the length of time you have owned your shares. For Virtus Conservative Allocation Strategy Fund and Virtus Growth Allocation Strategy Fund, the use of a fund of funds structure may affect the amount, timing and character of distributions to shareholders.
Unless you elect to receive distributions in cash, dividends and capital gain distributions are paid in additional shares. All distributions, whether paid in cash or in additional shares, are subject to federal income tax and may be subject to state, local and other taxes.
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The financial highlights for each fund reflect the historical financial highlights of its corresponding Predecessor Fund, a separate series of RidgeWorth Funds that was managed by RidgeWorth. Upon the completion of the reorganization of each Predecessor Fund with and into its respective fund, expected to occur on [_________], 2017, the Class A, Class C, Class I and Class IS Shares of each fund, as applicable, will assume the performance, financial and other historical information of the Class A, Class C, Class I and Class IS Shares, respectively, of the corresponding Predecessor Fund, except that the Virtus Growth Allocation Strategy Fund assumed the performance, financial and other historical information of the RidgeWorth Growth Allocation Strategy only, and not the RidgeWorth Moderate Allocation Strategy.
These tables are intended to help you understand each Predecessor Fund’s financial performance for the past five years or since inception. Some of this information reflects financial information for a single fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in a fund (assuming reinvestment of all dividends and distributions). This information has been audited by ____________________, the Predecessor Funds' independent registered public accounting firm. ____________________'s report, together with each Predecessor Fund’s financial statements, is included in the Predecessor Funds’ most recent Annual Report, which is available upon request.
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| Virtus Mutual Funds | |
| [P.O. Box 8053] | |
| [Boston, MA 02266-8053] |
ADDITIONAL INFORMATION
You can find more information about the funds in the following documents:
Annual and Semiannual Reports Annual and semiannual reports contain more information about the funds’ investments. The annual report discusses the market conditions and investment strategies that significantly affected the funds’ performance during the last fiscal year.
Statement of Additional Information (SAI) The SAI contains more detailed information about the funds. It is incorporated by reference and is legally part of the prospectus.
Appendix A—Intermediary Sales Charge Discounts and Waivers contains more information about specific sales charge discounts and waivers available for shareholders who purchase fund shares through a specific intermediary. [It is incorporated by reference and is legally part of this prospectus.]
To obtain free copies of these documents, you can download copies from the Individual Investors section of our Website, virtus.com, or you can request copies by calling us toll free at 888-784-3863. You may also call this number to request other information about the funds or to make shareholder inquiries.
Information about the funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission’s ("SEC") Public Reference Room in Washington, DC. For information about the operation of the Public Reference Room, call 202-551-8090. Reports and other information about the funds are available in the EDGAR database on the SEC’s Internet site at sec.gov. You may also obtain copies upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009 or by electronic request at publicinfo@sec.gov .
Transfer/Sub-transfer Agent: 888-784-3863
Daily NAV Information
The daily NAV for each fund may be obtained from the Our Products section of our Web site, [virtus.com] .
| Investment Company Act File No. 811-07705 | [4-17] |
Appendix A
Intermediary Sales Charge Discounts and Waivers
Specific intermediaries may have different policies and procedures regarding the availability of front-end sales load waivers or CDSC waivers, which are discussed below. In all instances, it is the purchaser's responsibility to notify the fund or the purchaser's financial intermediary at the time of purchase of any relationship or other facts qualifying the purchaser for sales charge waivers or discounts. For waivers and discounts not available through a particular intermediary, in order to receive these waivers or discounts shareholders will have to purchase fund shares through another intermediary offering such waivers or discounts or directly from the fund if the fund offers such waivers or discounts. Please see the section entitled "Sales Charges – What arrangement is best for you?" for more information on sales charges and waivers available for different classes.
The information in this Appendix is part of, and incorporated into, the fund's prospectus.
MERRILL LYNCH
Effective April 10, 2017, shareholders purchasing fund shares through a Merrill Lynch platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in this fund's prospectus or SAI.
Front-end Sales Load Waivers on Class A Shares available at Merrill Lynch
- Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan.
- Shares purchased by or through a 529 Plan.
- Shares purchased through a Merrill Lynch affiliated investment advisory program.
- Shares purchased by third party investment advisors on behalf of their advisory clients through Merrill Lynch's platform.
- Shares of funds purchased through the Merrill Edge Self-Directed platform (if applicable).
- Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).
- Shares exchanged from Class C ( i.e. level-load) shares of the same fund in the month of or following the 10-year anniversary of the purchase date.
- Employees and registered representatives of Merrill Lynch or its affiliates and their family members.
- Trustees of the fund, and employees of the fund's investment adviser or any of its affiliates, as described in this prospectus.
- Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).
CDSC Waivers on A and C Shares available at Merrill Lynch
- Death or disability of the shareholder.
- Shares sold as part of a systematic withdrawal plan as described in the Fund’s prospectus
- Return of excess contributions from an IRA Account.
- Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½.
- Shares sold to pay Merrill Lynch fees but only if the transaction is initiated by Merrill Lynch.
- Shares acquired through a right of reinstatement.
- Shares held in retirement brokerage accounts, that are exchanged for a lower cost share class due to transfer to certain fee based accounts or platforms (applicable to A and C shares only).
Front-end load Discounts Available at Merrill Lynch:
Breakpoints, Rights of Accumulation & Letters of Intent
- Breakpoints as described in this prospectus.
- Rights of Accumulation (ROA) which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Merrill Lynch. Eligible fund family assets not held at Merrill Lynch may be included in the ROA calculation only if the shareholder notifies his or her financial advisor about such assets.
- Letters of Intent (LOI) which allow for breakpoint discounts based on anticipated purchases within a fund family, through Merrill Lynch, over a 13-month period of time.
Morgan Stanley WEALTH MANGEMENT
Class T Share Eligibility
Class T Shares are available to Morgan Stanley Wealth Management clients who purchase fund shares through a transactional brokerage account. Other share classes offered through this prospectus will not be available to Morgan Stanley Wealth Management clients who purchase mutual funds through a transactional brokerage account. Rights of accumulation, letters of intent, rights of reinstatement and exchange privileges are not available on purchases of Class T Shares.
Sales Charge Waivers
Class T Shares are available for purchase by Morgan Stanley Wealth Management clients with the front-end load waived as follows:
| · | Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans; however these plans are eligible to purchase Class T Shares through a transactional brokerage account. |
| · | Morgan Stanley Wealth Management employee and employee-related accounts according to Morgan Stanley’s account linking rules. |
| · | Shares purchased through reinvestment of dividends and capital gains distributions when purchasing shares of the same fund. |
| · | Mutual fund shares exchanged from an existing position in the same fund as part of a share class conversion instituted by Morgan Stanley Wealth Management. |
Unless specifically described above, no other front-end load waivers are available to mutual fund purchases by Morgan Stanley Wealth Management clients in transactional brokerage accounts.
Prospectus
| TICKER SYMBOL BY CLASS | ||||||
| FUND | A | C | R | I | IS | T |
| Investment Grade Funds | ||||||
| Virtus Seix Core Bond Fund | STGIX | SCIGX | STIGX | STGZX | ||
| Virtus Seix Corporate Bond Fund | SAINX | STIFX | STICX | |||
| Virtus Seix Total Return Bond Fund | CBPSX | SCBLX | SAMFX | SAMZX | ||
| Virtus Seix U.S. Mortgage Fund | SLTMX | SCLFX | SLMTX | |||
| Short Duration Funds | ||||||
| Virtus Seix Limited Duration Fund | SAMLX | |||||
| Virtus Seix Short-Term Bond Fund | STSBX | SCBSX | SSBTX | |||
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | SIGVX | SIGZX | ||||
| Virtus Seix Ultra-Short Bond Fund | SISSX | |||||
| High Yield Funds | ||||||
| Virtus Seix Floating Rate High Income Fund | SFRAX | SFRCX | SAMBX | SFRZX | ||
| Virtus Seix High Income Fund | SAHIX | STHIX | STHTX | STHZX | ||
| Virtus Seix High Yield Fund | HYPSX | HYLSX | SAMHX | HYIZX | ||
| Municipal Bond Funds | ||||||
| Virtus Seix Georgia Tax-Exempt Bond Fund | SGTEX | SGATX | ||||
| Virtus Seix High Grade Municipal Bond Fund | SFLTX | SCFTX | ||||
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | SISIX | STTBX | ||||
| Virtus Seix North Carolina Tax-Exempt Bond Fund | SNCIX | CNCFX | ||||
| Virtus Seix Short-Term Municipal Bond Fund | SMMAX | CMDTX | ||||
| Virtus Seix Virginia Intermediate Municipal Bond Fund | CVIAX | CRVTX | ||||
| TRUST NAME | April __, 2017 |
VIRTUS ASSET TRUST
| Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. This prospectus contains important information that you should know before investing in Virtus mutual funds. Please read it carefully and retain it for future reference. | | |
Not FDIC Insured No Bank Guarantee May Lose Value |
| Virtus Mutual Funds |
Investment Objective
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Core Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Core Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class R | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class R | Class I | Class IS | Class T |
| Management Fees | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 0.50% | None | None | 0.25% |
| Other Expenses | 0.31% (a) | 0.27% (a) | 0.40% (a) | 0.23% (a) | 0.31% (b) |
| Total Annual Fund Operating Expenses | 0.81% | 1.02% | 0.65% | 0.48% | 0.81% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.16% | -0.12% | -0.15% | -0.11% | -0.16% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.65% | 0.90% | 0.50% | 0.37% | 0.65% |
| (a) | Restated to reflect current fees and expenses. |
| (b) |
Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do |
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not exceed __% for Class A Shares, __% for Class R Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 538 | $ | 690 | $ | 873 | $ | 1,400 |
| Class R | Sold or Held | $ | 92 | $ | 300 | $ | 539 | $ | 1,225 |
| Class I | Sold or Held | $ | 51 | $ | 177 | $ | 332 | $ | 781 |
| Class IS | Sold or Held | $ | 38 | $ | 131 | $ | 246 | $ | 582 |
| Class T | Sold or Held | $ | 315 | $ | 470 | $ | 657 | $ | 1,197 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests in various types of income-producing debt securities including mortgage- and asset-backed securities, government and agency obligations, and corporate obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt, rated investment grade (BBB-/Baa3 or better). The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade fixed income securities. These securities will be
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chosen from the broad universe of available fixed income securities rated investment grade, or unrated securities that the subadviser believes are of comparable quality.
The fund can hold up to 5% of its net assets in securities that are downgraded below investment grade. The fund may also invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters, and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may also utilize Treasury Inflation Protection Securities (“TIPS”) opportunistically. The fund may count the value of certain derivatives with investment grade fixed income characteristics and TIPS towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Inflation Protected Investing Risk. The risk that inflation-protected securities will react differently from other fixed income securities to changes in interest rates. The values of inflation-protected securities are anticipated to change in response to changes in “real” interest rates, which represent nominal (stated) interest rates reduced by the expected impact of inflation. Generally, the value of an inflation-protected security will fall when real interest rates rise and will rise when real interest rates fall. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based
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securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
Inception Class IS (8/3/15) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class R | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for mutual fund fees or expenses) |
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The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2008. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2004. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
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Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class R Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class R Shares are available only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and other retirement plan platforms, including brokers, dealers, banks, insurance companies, retirement plan record-keepers and others, in each case provided that plan level or omnibus accounts are held on the books of the fund.
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Corporate Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Corporate Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None |
None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.40% | 0.40% | 0.40% | 0.40% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | 0.25% |
| Other Expenses | 0.50% (b) | 0.47% (b) | 0.62% (b) | 0.50% (c) |
| Total Annual Fund Operating Expenses | 1.15% | 1.87% | 1.02% | 1.15% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.20% | -0.22% | -0.32% | -0.20% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 0.95% | 1.65% | 0.70% | 0.95% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 567 | $ | 784 | $ | 1,040 | $ | 1,771 |
| Class C | Sold | $ | 268 | $ | 544 | $ | 969 | $ | 2,153 |
| Held | $ | 168 | $ | 544 | $ | 969 | $ | 2,153 | |
| Class I | Sold or Held | $ | 72 | $ | 259 | $ | 499 | $ | 1,188 |
| Class T | Sold or Held | $ | 345 | $ | 567 | $ | 828 | $ | 1,577 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund primarily invests in a diversified portfolio of U.S. dollar denominated corporate obligations and other fixed income securities that are rated investment grade (BBB-/Baa3 or better) or unrated securities that the subadviser believes are of comparable quality.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in corporate bonds. The fund may also invest in U.S. Treasury and
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agency obligations, floating rate loans, and below investment grade, high yield debt obligations (sometimes referred to as “junk bonds”), including emerging market securities. The fund may invest in U.S. dollar denominated obligations of U.S. and non-U.S. issuers. The fund may invest a portion of its assets in securities that are restricted as to resale.
Buy and sell decisions are based on a wide number of factors that determine the risk-reward profile of each security within the context of the broader portfolio. The subadviser attempts to identify investment grade corporate bonds offering above-average total return. In selecting corporate debt investments for purchase and sale, the subadviser seeks out companies with good fundamentals and above-average return prospects that are currently priced at attractive levels. The primary basis for security selection is the potential income offered by the security relative to the subadviser’s assessment of the issuer’s ability to generate the cash flow required to meet its obligations. The subadviser employs a “bottom-up” approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with corporate bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in corporate bonds.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. | |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. | |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. | |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. | |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
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Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class C | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Corporate Investment Grade Index (reflects no deduction for mutual fund fees or expenses) |
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The Bloomberg Barclays U.S. Corporate Investment Grade Index measures the U.S. investment grade fixed rate taxable securities sold by industrial, utility and financial issuers. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2008. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2004. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
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Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Total Return Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Total Return Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class R | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class R | Class I | Class IS | Class T |
| Management Fees | 0.24% | 0.24% | 0.24% | 0.24% | 0.24% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 0.50% | None | None | 0.25% |
| Other Expenses | 0.38% (a) | 0.42% (a) | 0.36% (a) | 0.20% (a) | 0.38% (b) |
| Total Annual Fund Operating Expenses | 0.87% | 1.16% | 0.60% | 0.44% | 0.87% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.16% | -0.09% | -0.14% | -0.12% | -0.16% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.71% | 1.07% | 0.46% | 0.32% | 0.71% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do |
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not exceed __% for Class A Shares, __% for Class R Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 544 | $ | 708 | $ | 904 | $ | 1,468 |
| Class R | Sold or Held | $ | 109 | $ | 350 | $ | 621 | $ | 1,392 |
| Class I | Sold or Held | $ | 47 | $ | 163 | $ | 306 | $ | 723 |
| Class IS | Sold or Held | $ | 33 | $ | 116 | $ | 222 | $ | 531 |
| Class T | Sold or Held | $ | 321 | $ | 489 | $ | 689 | $ | 1,266 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests in various types of income-producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade, or unrated securities that the subadviser believes are of comparable quality.
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The fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations (sometimes referred to as “junk bonds”). The fund may also invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser generally selects a greater weighting in corporate obligations and mortgage-backed securities relative to the fund’s comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
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The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class R | |||
| Return Before Taxes | |||
| Class IS Shares | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Aggregate Bond Index (reflects no deduction for mutual fund fees or expenses) |
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The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2008. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2002. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Seth Antiles , Ph.D., Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
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| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class R Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class R Shares are available only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and other retirement plan platforms, including brokers, dealers, banks, insurance companies, retirement plan record-keepers and others, in each case provided that plan level or omnibus accounts are held on the books of the fund.
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix U.S. Mortgage Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix U.S. Mortgage Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 2.50% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None |
None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.40% | 0.40% | 0.40% | 0.40% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.20% | 1.00% | None | 0.25% |
| Other Expenses | 0.49% (b) | 0.37% (b) | 0.55% (b) | 0.49% (c) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 1.10% | 1.78% | 0.96% | 1.15% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.19% | -0.12% | -0.25% | -0.24% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 0.91% | 1.66% | 0.71% | 0.91% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares and Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 341 | $ | 553 | $ | 804 | $ | 1,522 |
| Class C | Sold | $ | 269 | $ | 536 | $ | 941 | $ | 2,074 |
| Held | $ | 169 | $ | 536 | $ | 941 | $ | 2,074 | |
| Class I | Sold or Held | $ | 73 | $ | 255 | $ | 481 | $ | 1,131 |
| Class T | Sold or Held | $ | 341 | $ | 559 | $ | 821 | $ | 1,570 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. government agency mortgage-backed securities, such as the Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”) and collateralized mortgage obligations. The fund may invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
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Buy and sell decisions are based on a wide number of factors that determine the risk-reward profile of each security within the context of the broader portfolio. In selecting investments for purchase and sale the subadviser attempts to identify mortgage securities that it expects to perform well in rising and falling markets, such as those which have stable prepayments, call protection, below par prices, and refinancing barriers. The subadviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, FNMA or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for refinancing.
In addition, to implement its investment strategy, the fund may buy or sell, to a limited extent, derivative instruments (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk and credit risk. Further, the fund may utilize exchange traded futures to manage interest rate exposure.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
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The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class C | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Mortgage-Backed Securities Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Mortgage-Backed Securities Index measures the agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) issued by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2008. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Seth Antiles , Ph.D., Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2009. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
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Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking current income, while preserving liquidity and principal.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Limited Duration Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Limited Duration Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class I | Class T |
| Management Fees | 0.10% | 0.10% |
| Distribution and Shareholder Servicing (12b-1) Fees | None | 0.25% |
| Other Expenses | 0.36% (a) | [ ]% (c) |
| Total Annual Fund Operating Expenses | 0.46% | [ ]% |
| Less: Fee Waivers and/or Expense Reimbursements (b) | -0.11% | [ ]% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (b) | 0.35% | [ ]% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class I Shares through July __, 2019. Following the contractual | |
| (c) | Estimated for current fiscal year, as annualized. |
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period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class I | Sold or Held | $ | 36 | $ | 125 | $ | 235 | $ | 557 |
| Class T | Sold or Held | $ | $ | $ | $ | ||||
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests in U.S. dollar-denominated, investment grade (BBB-/Baa3 or better) fixed income securities, including corporate and bank obligations, government securities, and mortgage-and asset-backed securities of U.S. and non-U.S. issuers, rated A or better, or unrated securities that the subadviser believes are of comparable quality.
The fund’s investment in non-U.S. issuers may at times be significant.
The fund will maintain an average credit quality of AA and all securities held in the fund will have interest rate durations of 180 days or less. The fund may invest a portion of its assets in securities that are restricted as to resale.
The subadviser attempts to identify U.S. dollar-denominated, investment grade fixed income securities that offer high current income while preserving liquidity and principal. In selecting investments for purchase and sale, the subadviser emphasizes securities that are within the
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targeted segment of the U.S. dollar-denominated, fixed income securities markets and will generally focus on investments that have good business prospects, credit strength, stable cash flows and effective management. The subadviser may retain securities if the rating of the security falls below credit quality of A and the subadviser deems retention of the security to be in the best interests of the fund.
In addition, to implement its investment strategy, the fund may buy or sell, to a limited extent, derivative instruments (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) to use as a substitute for a purchase or sale of a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk and credit risk.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Short-Term Investments Risk. The risk that the fund’s short-term investments will not provide the liquidity or protection intended or will prevent the fund from experiencing positive movements in the fund’s principal investment strategies. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index (reflects no deduction for mutual fund fees or expenses) |
The Bank of America Merrill Lynch 3 Month U.S. Treasury Bill Index tracks the monthly price-only and total return performance of a three-month U.S. Treasury bill, based on monthly average auction rates. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2008. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2002. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2007. |
| · | Seth Antiles , Ph.D., Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2009. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
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Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Short-Term Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Short-Term Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 2.50% | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class T |
| Management Fees | 0.40% | 0.40% | 0.40% | 0.40% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.20% | 1.00% | None | 0.25% |
| Other Expenses | 0.33% (b) | 0.28% (b) | 0.41% (b) | 0.33% (c) |
| Total Annual Fund Operating Expenses | 0.93% | 1.68% | 0.81% | 0.98% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.13% | -0.27% | -0.21% | -0.18% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 0.80% | 1.41% | 0.60% | 0.80% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 330 | $ | 513 | $ | 726 | $ | 1,341 |
| Class C | Sold | $ | 244 | $ | 475 | $ | 860 | $ | 1,941 |
| Held | $ | 144 | $ | 475 | $ | 860 | $ | 1,941 | |
| Class I | Sold or Held | $ | 61 | $ | 215 | $ | 407 | $ | 962 |
| Class T | Sold or Held | $ | 330 | $ | 518 | $ | 743 | $ | 1,388 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of short- to medium-term investment grade (BBB-/Baa3 or better) U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. These securities may be rated investment grade by at least one national securities rating agency or may be unrated securities that the subadviser believes are of comparable quality.
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The fund expects that it will normally maintain an effective maturity of 3 years or less. The fund’s investment in non-U.S. issuers may at times be significant.
The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
The fund may invest a portion of its assets in securities that are restricted as to resale.
As a result of its investment strategies, the fund’s portfolio turnover rate may be 100% or more.
In selecting securities for purchase and sale, the subadviser attempts to identify securities that are expected to offer a comparably better investment return for a given level of risk. For example, short-term bonds generally have better returns than money market instruments with a fairly modest increase in risk and/or volatility. The subadviser manages the fund from a total return perspective. That is, the subadviser makes day-to-day investment decisions for the fund with a view towards maximizing returns. The subadviser analyzes, among other things, yields, market sectors and credit risk in an effort to identify attractive investments with attractive risk/reward trade-offs.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Short-Term Investments Risk. The risk that the fund’s short-term investments will not provide the liquidity or protection intended or will prevent the fund from experiencing positive movements in the fund’s principal investment strategies. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how
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the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Class C | |||
| Return Before Taxes | |||
| Bloomberg Barclays 1-3 Year Government/Credit Index (reflects no deduction for mutual fund fees or expenses) |
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The Bloomberg Barclays 1-3 Year Government/Credit Index measures the 1-3 year component of the U.S. Government/Credit index and includes securities in the U.S. Government and Credit indices. The Government Index includes U.S. Treasuries (public obligations of the U.S. Treasury that have remaining maturities of more than one year) and U.S. agencies (publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
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Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Virtus Seix U.S. Government Securities Ultra-Short Bond Fund
Investment Objective
The fund has an investment objective of seeking to maximize current income consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix U.S. Government Securities Ultra-Short Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix U.S. Government Securities Ultra-Short Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class I | Class IS | Class T |
| Management Fees | 0.19% | 0.19% | 0.19% |
| Distribution and Shareholder Servicing (12b-1) Fees | None | None | 0.25 % |
| Other Expenses | 0.38% (a) | 0.20% (a) | 0.38 % (b) |
| Total Annual Fund Operating Expenses | 0.57% | 0.39% | 0.82% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.16% | -0.13% | -0.16% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.41% | 0.26% | 0.66% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) |
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so that such expenses do not exceed __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class I | Sold or Held | $ | 42 | $ | 150 | $ | 286 | $ | 682 |
| Class IS | Sold or Held | $ | 27 | $ | 98 | $ | 192 | $ | 467 |
| Class T | Sold or Held | $ | 316 | $ | 473 | $ | 662 | $ | 1,208 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in short duration U.S. government securities. These securities may include, but are not limited to, U.S. Treasury securities, U.S. agency securities, U.S. agency mortgage-backed securities, repurchase agreements and other U.S. government securities.
The fund expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years.
In selecting securities for purchase and sale, the subadviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity.
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The fund may use U.S. Treasury securities futures as a vehicle to adjust duration and manage its interest rate exposure.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Short-Term Investments Risk. The risk that the fund’s short-term investments will not provide the liquidity or protection intended or will prevent the fund from experiencing positive movements in the fund’s principal investment strategies. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
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Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
Inception Class IS (8/1/16) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | -- | |
| Bloomberg Barclays 3-6 Month U.S. Treasury Bill Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays 3-6 Month U.S. Treasury Bill Index measures the 3-6 Months component of the Barclays U.S. Treasury Bills Index. It includes U.S. Treasury bills with a remaining maturity from 1 up to (but not including) 12 months. It excludes zero coupon strips. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
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The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
Purchase and Sale of Fund Shares
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maxmimize current income consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Ultra-Short Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Ultra-Short Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None |
None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class I | Class T |
| Management Fees | 0.22% | 0.22% |
| Distribution and Shareholder Servicing (12b-1) Fees | None | 0.25 % |
| Other Expenses | 0.31% (a) | 0.31 % (b) |
| Total Annual Fund Operating Expenses | 0.53% | 0.78% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.13% | -0.13% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.40% | 0.65% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do |
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not exceed __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class I | Sold or Held | $ | 41 | $ | 143 | $ | 270 | $ | 639 |
| Class T | Sold or Held | $ | 315 | $ | 467 | $ | 647 | $ | 1,168 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in short duration fixed income securities. These securities may include, but are not limited to, U.S. Treasury and agency securities, obligations of supranational entities and foreign governments, domestic and foreign-corporate debt obligations, taxable-municipal debt securities, mortgage-backed and asset-backed securities, and repurchase agreements. The fund’s investment in foreign issuers may at times be significant.
The fund normally expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. The fund may invest a portion of its assets in securities that are restricted as to resale.
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In selecting investments for purchase and sale, the subadviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. The subadviser attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
In addition, to implement its investment strategy, the fund may buy or sell, derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as credit and interest rate risk.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Mortgage-Backed and Asset-Backed Securities Risk. The risk that changes in interest rates will cause both extension and prepayment risks for mortgage-backed and asset-backed securities in which the fund invests, or that an impairment of the value of collateral underlying such securities will cause the value of the securities to decrease. |
| · | Short-Term Investments Risk. The risk that the fund’s short-term investments will not provide the liquidity or protection intended or will prevent the fund from experiencing positive movements in the fund’s principal investment strategies. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Bloomberg Barclays 3-6 Month U.S. Treasury Bill Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays 3-6 Month U.S. Treasury Bill Index measures the 3-6 Months component of the Barclays U.S. Treasury Bills Index. It includes U.S. Treasury bills with a remaining maturity from 1 up to (but not including) 12 months. It excludes zero coupon strips. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. [After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary.] Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur
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when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | James F. Keegan , Chairman, Chief Investment Officer and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Perry Troisi , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Michael Rieger , Managing Director and Senior Portfolio Manager of Seix, has been a member of the fund’s management team since 2014. |
| · | Jonathan Yozzo , Managing Director, has been a member of the fund’s management team since 2015. |
| · | Carlos Catoya , Managing Director, has been a member of the fund’s management team since 2015. |
Purchase and Sale of Fund Shares
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
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Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of attempting to provide a high level of current income.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Floating Rate High Income Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Floating Rate High Income Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class C | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 2.50% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | 1.00% (a) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class C | Class I | Class IS | Class T |
| Management Fees | 0.41% | 0.41% | 0.41% | 0.41% | 0.41% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 1.00% | None | None | 0.25% |
| Other Expenses | 0.38% (b) | 0.24% (b) | 0.39% (b) | 0.24% (b) | 0.38% (c) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 1.05% | 1.66% | 0.81% | 0.66% | 1.05% |
| Less: Fee Waivers and/or Expense Reimbursements (d) | -0.09% | -0.12% | -0.16% | -0.12% | -0.09% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (d) | 0.96% | 1.54% | 0.65% | 0.54% | 0.96% |
| (a) | The deferred sales charge is imposed on Class C Shares redeemed during the first year only. |
| (b) | Restated to reflect current fees and expenses. |
| (c) | Estimated for current fiscal year, as annualized. |
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| (d) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class C Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 345 | $ | 559 | $ | 801 | $ | 1,494 |
| Class C | Sold | $ | 257 | $ | 500 | $ | 882 | $ | 1,954 |
| Held | $ | 157 | $ | 500 | $ | 882 | $ | 1,954 | |
| Class I | Sold or Held | $ | 66 | $ | 226 | $ | 417 | $ | 971 |
| Class IS | Sold or Held | $ | 55 | $ | 188 | $ | 347 | $ | 809 |
| Class T | Sold or Held | $ | 345 | $ | 559 | $ | 801 | $ | 1,494 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a combination of first- and second-lien senior floating rate loans and other floating rate debt securities.
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These loans are loans made by banks and other large financial institutions to various companies and are senior in the borrowing companies’ capital structure. Coupon rates are generally floating, not fixed, and are tied to a benchmark lending rate, the most popular of which is the London Interbank Offered Rate (“LIBOR”) or are set at a specified floor, whichever is higher.
The fund invests all or substantially all of its assets in floating rate loans and debt securities that are rated below investment grade by the Merrill Composite Rating or in comparable unrated securities. The fund may also invest up to 20% of its net assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed-rate bonds, investment grade fixed income debt obligations, asset-backed securities (such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. The fund may invest a portion of its assets in securities that are restricted as to resale.
The fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of the portfolio’s loans are non-U.S. dollar denominated. The fund may also engage in certain hedging transactions.
Some types of senior loans in which the fund may invest require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the loan) to fund the revolving portion of the loan at the borrower’s discretion, the fund must have funds sufficient to cover its contractual obligation. Therefore, the fund will maintain, on a daily basis, high-quality, liquid assets in an amount at least equal in value to its contractual obligation to fulfill the revolving senior loan. The fund will not encumber any assets that are otherwise encumbered. The fund will limit its investments in such obligations to no more than 25% of the fund’s total assets.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures, credit linked notes, options and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of first- and second-lien senior floating rate loans and other floating rate debt securities.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities
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by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index and a more narrowly-based benchmark that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
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| 1 Year | 5 Years | 10 Years |
Since
Inception Class IS (2/2/15) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class C | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Credit Suisse Leveraged Loan Index (reflects no deduction for mutual fund fees or expenses) | ||||
| Credit Suisse Institutional Leveraged Loan Index (reflects no deduction for mutual fund fees or expenses) |
The Credit Suisse Leveraged Loan Index is an index designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. The Index inception is January 1992. The Index frequency is monthly. New loans are added to the Index on their effective date if they qualify according to the following criteria: Loans must be rated “5B” or lower; only fully- funded term loans are included; the tenor must be at least one year; and the Issuers must be domiciled in developed countries (Issuers from developing countries are excluded). Fallen angels are added to the Index subject to the new loan criteria. Loans are removed from the Index when they are upgraded to investment grade, or when they exit the market (for example, at maturity, refinancing or bankruptcy workout). Note that issuers remain in the Index following default. Total return of the Index is the sum of three components: principal, interest, and reinvestment return. The cumulative return assumes that coupon payments are reinvested into the Index at the beginning of each period. The Credit Suisse Institutional Leveraged Loan Index is a sub-index of the Credit Suisse Leveraged Loan Index, which contains only institutional loan facilities priced above 90, excluding TL and TLA facilities and loans that are rated CC or C or are in default. It is designed to more closely reflect the investment criteria of institutional investors. The Index reflects reinvestment of all distributions and changes and market prices. The indexes are unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is
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realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | George Goudelias , Managing Director and Head of Leveraged Finance of Seix, has managed the fund since 2006. |
| · | Vincent Flanagan , Vice President and Portfolio Manager of Seix, has co-managed the fund since 2011. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A and Class C Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A and Class C Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
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Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking high current income and, secondarily, total return (comprised of capital appreciation and income).
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix High Income Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix High Income Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class R | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class R | Class I | Class IS | Class T |
| Management Fees | 0.55% | 0.55% | 0.55% | 0.55% | 0.55% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 0.50% | None | None | 0.25% |
| Other Expenses | 0.35% (a) | 0.29% (a) | 0.39% (a) | 0.22% (a) | 0.35% (b) |
| Total Annual Fund Operating Expenses | 1.15% | 1.34% | 0.94% | 0.77% | 1.15% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.10% | -0.10% | -0.14% | -0.12% | -0.10% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 1.05% | 1.24% | 0.80% | 0.65% | 1.05% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do |
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not exceed __% for Class A Shares, __% for Class R Shares, __% for Class I Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 577 | $ | 804 | $ | 1,059 | $ | 1,789 |
| Class R | Sold or Held | $ | 126 | $ | 404 | $ | 714 | $ | 1,595 |
| Class I | Sold or Held | $ | 82 | $ | 271 | $ | 492 | $ | 1,128 |
| Class IS | Sold or Held | $ | 66 | $ | 221 | $ | 404 | $ | 931 |
| Class T | Sold or Held | $ | 354 | $ | 586 | $ | 848 | $ | 1,595 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests primarily in a diversified portfolio of higher yielding, lower-rated income-producing debt instruments, including corporate obligations, floating rate loans and other debt obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market corporate debt. The fund’s investment in non-U.S. issuers may at times be significant. The fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated below investment grade by the Merrill Composite Rating or in unrated securities that the subadviser believes are of comparable quality. Such securities are commonly known as “junk bonds” and present greater risks than investment grade debt securities. The fund may also
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invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 65% of its net assets in non-investment grade fixed income securities.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
| · | U.S. Government Securities Risk. The risk that U.S. Government securities in the fund’s portfolio will be subject to price fluctuations, or that an agency or instrumentality will default on an obligation not backed by the full faith and credit of the United States. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
Inception Class IS (8/1/14) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class R | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | ||
| Bloomberg Barclays U.S. Corporate High Yield Bond Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high yield if the middle rating of Moody’s Investors Service, Inc., Fitch, Inc. and Standard & Poor’s Financial Services LLC is Ba1/BB+/BB+ or below. The index excludes
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emerging markets debt. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Michael Kirkpatrick , Managing Director and Senior Portfolio Manager of Seix, has co-managed the fund since 2011. |
| · | James FitzPatrick , CFA, Managing Director, Portfolio Manager and Head of Leveraged Finance Trading of Seix, has co-managed the fund since 2013. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class R Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class R Shares are available only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and other
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retirement plan platforms, including brokers, dealers, banks, insurance companies, retirement plan record-keepers and others, in each case provided that plan level or omnibus accounts are held on the books of the fund.
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking high income and, secondarily, capital appreciation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds.You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix High Yield Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix High Yield Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class R | Class I | Class IS | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | None | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class R | Class I | Class IS | Class T |
| Management Fees | 0.45% | 0.45% | 0.45% | 0.45% | 0.45% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | 0.50% | None | None | 0.25% |
| Other Expenses | 0.31% (a) | 0.22% (a) | 0.31% (a) | 0.21% (a) | 0.31% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 1.02% | 1.18% | 0.77% | 0.67% | 1.02% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.19% | -0.12% | -0.12% | -0.12% | -0.19% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.83% | 1.06% | 0.66% | 0.55% | 0.83% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class R Shares, __% for Class I |
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Shares, __% for Class IS Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 556 | $ | 747 | $ | 975 | $ | 1,630 |
| Class R | Sold or Held | $ | 108 | $ | 350 | $ | 625 | $ | 1,410 |
| Class I | Sold or Held | $ | 66 | $ | 221 | $ | 404 | $ | 931 |
| Class IS | Sold or Held | $ | 56 | $ | 190 | $ | 349 | $ | 811 |
| Class T | Sold or Held | $ | 333 | $ | 529 | $ | 762 | $ | 1,432 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests in various types of lower-rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar denominated, high yield securities rated below investment grade by either the Merrill Composite Rating or unrated securities that the subadviser believes are of comparable quality. Such securities are commonly known as “junk bonds” and present greater
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risks than investment grade bonds. Although the fund seeks to achieve its investment objective primarily through investment in high yield securities, the fund may invest up to 20% of its net assets in investment grade securities.
The fund will be managed with a duration that is close to the fund’s comparative benchmark, the Merrill Lynch U.S. High Yield BB/B Rated Constrained Index, which is generally between 3 and 6 years. The fund may also invest a portion of its assets in securities that are restricted as to resale.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield securities.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Derivatives Risk. The risk that the fund will incur a loss greater than the fund’s investment in, or will experience greater share price volatility as a result of investing in, a derivative contract. Derivatives may include, among other things, futures, options, forwards and swap agreements and may be used in order to hedge portfolio risks, create leverage, or to attempt to increase yield. |
| · | Emerging Market Investing Risk. The risk that prices of emerging markets securities will be more volatile, or will be more greatly affected by negative conditions, than those of their counterparts in more established foreign markets. |
| · | Foreign Investing Risk. The risk that the prices of foreign securities in the fund’s portfolio will be more volatile than those of domestic securities, or will be negatively affected by currency fluctuations, less regulated or liquid securities markets, or economic, political or other developments. |
| · | High-Yield/High-Risk Fixed Income Securities (Junk Bonds) Risk. The risk that the issuers of high-yield/high-risk securities in the fund’s portfolio will default, that the prices of such securities will be volatile, and that the securities will not be liquid. |
| · | Illiquid and Restricted Securities. Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Loan Risk. The risks that, in addition to the risks typically associated with high-yield/high-risk fixed income securities, loans in which the fund invests may be unsecured or not fully collateralized, may be subject to restrictions on resale, and/or some loans may trade infrequently on the secondary market. Loans settle on a delayed basis, potentially leading to the sale proceeds of loans not being available to meet redemptions for a substantial period of time after the sale of the loans. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based
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securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years |
Since
Inception Class IS (8/1/16) |
|
| Class I | ||||
| Return Before Taxes | ||||
| Return After Taxes on Distributions | ||||
| Return After Taxes on Distributions and Sale of Fund Shares | ||||
| Class A | ||||
| Return Before Taxes | ||||
| Class R | ||||
| Return Before Taxes | ||||
| Class IS Shares | ||||
| Return Before Taxes | -- | -- | -- | |
| Bank of America Merrill Lynch BB-B U.S. High Yield Constrained Index (reflects no deduction for mutual fund fees or expenses) |
The Bank of America Merrill Lynch BB-B U.S. High Yield Constrained Index tracks the performance of BB1 through B3 rated U.S. dollar-denominated corporate bonds publicly issued
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in the U.S. domestic market. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Michael Kirkpatrick , Managing Director and Senior Portfolio Manager of Seix, has co-managed the fund since 2007. |
| · | James FitzPatrick , CFA, Managing Director, Portfolio Manager and Head of Leveraged Finance Trading of Seix, has co-managed the fund since 2013. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class R Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class R Shares are available only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and other
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retirement plan platforms, including brokers, dealers, banks, insurance companies, retirement plan record-keepers and others, in each case provided that plan level or omnibus accounts are held on the books of the fund.
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
For Class IS Shares, there is no minimum initial investment and there is no minimum for additional purchases. Class IS Shares are available only to certain employer-sponsored retirement plans, including Section 401(k), 403(b) and 457, profit-sharing, money purchase pension and defined benefit plans and non-qualified deferred compensation plans, in each case provided that plan level or omnibus accounts are held on the books of the fund .
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
The fund’s distributions are taxable to you as either ordinary income or capital gains, except when your investment is through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account. Such tax-deferred arrangements may be taxed later upon withdrawal of monies from those arrangements.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment.
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking current income exempt from federal and state income taxes for Georgia residents consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Georgia Tax-Exempt Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Georgia Tax-Exempt Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.50% | 0.50% | 0.50% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.15% | None | 0.25% |
| Other Expenses | 0.23% (a) | 0.32% (a) | 0.23% (b) |
| Total Annual Fund Operating Expenses | 0.88% | 0.82% | 0.98% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.12% | -0.17% | -0.22% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.76% | 0.65% | 0.76% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) |
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so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 549 | $ | 719 | $ | 916 | $ | 1,481 |
| Class I | Sold or Held | $ | 66 | $ | 227 | $ | 421 | $ | 981 |
| Class T | Sold or Held | $ | 326 | $ | 510 | $ | 735 | $ | 1,381 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities with income exempt from U.S. federal and Georgia state income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. territories and possessions. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued market sectors and less in overvalued sectors taking into consideration maturity, sector, credit,
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state and supply and demand levels. There are no limits on the fund’s average-weighted maturity or on the remaining maturities of individual securities. The subadviser tries to diversify the fund’s holdings within the State of Georgia.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Geographic Concentration Risk. The risk that events negatively affecting the geographic location where the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Municipal Bond Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Municipal Bond Index measures the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Chris Carter , CFA, Director and Portfolio Manager of Seix, has managed the fund since 2003. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds issued in 2009 or 2010) may be a preference item for purposes of the federal alternative minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
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Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix High Grade Municipal Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix High Grade Municipal Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.50% | 0.50% | 0.50% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.15% | None | 0.25% |
| Other Expenses | 0.27% (a) | 0.30% (a) | 0.27% (b) |
| Acquired Fund Fees and Expenses | 0.02% | 0.02% | 0.02% |
| Total Annual Fund Operating Expenses | 0.94% | 0.82% | 1.04% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.12% | -0.15% | -0.22% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.82% | 0.67% | 0.82% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
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| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 555 | $ | 737 | $ | 947 | $ | 1,553 |
| Class I | Sold or Held | $ | 68 | $ | 231 | $ | 425 | $ | 985 |
| Class T | Sold or Held | $ | 332 | $ | 529 | $ | 767 | $ | 1,449 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade (BBB-/Baa3 or better) municipal securities, including securities subject to the U.S. federal alternative minimum tax, with income exempt from regular U.S. federal income tax. The fund may invest its remaining assets in cash, cash equivalents and certain taxable debt securities. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and
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investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the Fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Municipal Bond Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Municipal Bond Index measures the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Ronald Schwartz , CFA, Managing Director and Senior Portfolio Manager of Seix, has managed the fund since 1994. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds issued in 2009 or 2010) may be a preference item for purposes of the federal alternative minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
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Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize high total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Investment Grade Tax-Exempt Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Investment Grade Tax-Exempt Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.49% | 0.49% | 0.49% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.25% | None | 0.25% |
| Other Expenses | 0.26% (a) | 0.34% (a) | 0.26% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 1.01% | 0.84% | 1.01% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.20% | -0.18% | -0.20% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.81% | 0.66% | 0.81% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
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| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 554 | $ | 742 | $ | 968 | $ | 1,617 |
| Class I | Sold or Held | $ | 67 | $ | 231 | $ | 430 | $ | 1,003 |
| Class T | Sold or Held | $ | 331 | $ | 524 | $ | 755 | $ | 1,419 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [___]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
The fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade (BBB-/Baa3 or better) tax-exempt obligations, such as municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and
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investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The subadviser anticipates that the fund’s average-weighted maturity will range from 4 to 10 years but there is no limit on the maturities of individual securities. The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Portfolio Turnover Risk. The risk that the fund’s principal investment strategies will result in a consistently high portfolio turnover rate. See the Portfolio Turnover section above for more information about the impact that portfolio turnover can have on your investment. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Municipal Bond 1-15 Year Blend Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Municipal Bond 1-15 Year Blend Index is composed of tax-exempt bonds with maturities ranging between 1-15 years. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is
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realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Ronald Schwartz , CFA, Managing Director and Senior Portfolio Manager of Seix, has managed the fund since 1992. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds issued in 2009 or 2010) may be a preference item for purposes of the federal alternative
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minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking current income exempt from federal and state income taxes for North Carolina residents consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix North Carolina Tax-Exempt Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix North Carolina Tax-Exempt Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Shareholder Fees (fees paid directly from your investment) | Class A | Class I | Class T |
| Maximum Sales Charge (load) Imposed on Purchases (as a percentage of offering price) | 4.75% | None | 2.50% |
| Maximum Deferred Sales Charge (load) (as a percentage of the lesser of purchase price or redemption proceeds) | None | None | None |
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.50% | 0.50% | 0.50% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.15% | None | 0.25% |
| Other Expenses | 0.26% (a) | 0.34% (a) | 0.26% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 0.92% | 0.85% | 1.02% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.11% | -0.19% | -0.21% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.81% | 0.66% | 0.81% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) |
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so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred.
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 554 | $ | 733 | $ | 939 | $ | 1,533 |
| Class I | Sold or Held | $ | 67 | $ | 232 | $ | 433 | $ | 1,013 |
| Class T | Sold or Held | $ | 331 | $ | 525 | $ | 758 | $ | 1,428 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities with income exempt from U.S. federal and North Carolina state income taxes. Issuers of these securities can be located in North Carolina, Puerto Rico and other U.S. territories and possessions. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued market sectors and less in overvalued sectors taking into consideration maturity, sector, credit,
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state and supply and demand levels. There are no limits on the fund’s average-weighted maturity or on the remaining maturities of individual securities.
The subadviser tries to diversify the fund’s holdings within the State of North Carolina. The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit.
The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Geographic Concentration Risk. The risk that events negatively affecting the geographic location where the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Non-Diversification Risk. The risk that the fund will be more susceptible to factors negatively impacting the securities in its portfolio to the extent that the fund invests more of its assets in the securities of fewer issuers than would a diversified fund. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Municipal Bond Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Municipal Bond Index measures the U.S. dollar-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period
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may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Chris Carter , CFA, Director and Portfolio Manager of Seix, has managed the fund since 2005. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds issued in 2009 or 2010) may be a preference item for purposes of the federal alternative
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minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking to maximize total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Short-Term Municipal Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Short-Term Municipal Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.35% | 0.35% | 0.35% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.15% | None | 0.25% |
| Other Expenses | 0.37% (a) | 0.49% (a) | 0.37% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 0.88% | 0.85% | 0.98% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.19% | -0.36% | -0.29% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.69% | 0.49% | 0.69% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
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| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 319 | $ | 486 | $ | 688 | $ | 1,272 |
| Class I | Sold or Held | $ | 50 | $ | 197 | $ | 399 | $ | 980 |
| Class T | Sold or Held | $ | 319 | $ | 496 | $ | 722 | $ | 1,368 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was [__]% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities, including securities subject to the U.S. federal alternative minimum tax, with the income exempt from regular U.S. federal income tax. The fund will invest primarily in investment grade short-term municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. The fund may also invest a portion of its net assets in certain taxable debt securities. The fund expects that it will normally maintain an effective maturity of 3 years or less.
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In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the Fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Short-Term Investments Risk. The risk that the fund’s short-term investments will not provide the liquidity or protection intended or will prevent the fund from experiencing positive movements in the fund’s principal investment strategies. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays 1-5 Year Municipal Bond Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays 1-5 Year Municipal Bond Index is composed of tax-exempt bonds with maturities ranging between 1-6 years. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period
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may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Ronald Schwartz , CFA, Managing Director and Senior Portfolio Manager of Seix, has co-managed the fund since 2011. |
| · | Dusty Self , Managing Director and Portfolio Manager of Seix, has co-managed the fund since 2011. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds
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issued in 2009 or 2010) may be a preference item for purposes of the federal alternative minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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Investment Objective
The fund has an investment objective of seeking current income exempt from federal and state income taxes for Virginia residents consistent with capital preservation.
Fees and Expenses
The tables below illustrate the fees and expenses that you may pay if you buy and hold shares of the fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Virtus Mutual Funds. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
The Virtus Seix Virginia Intermediate Municipal Bond Fund, a series of Virtus Asset Trust, is the successor of the RidgeWorth Seix Virginia Intermediate Municipal Bond Fund, a series of RidgeWorth Funds (“Predecessor Fund”), resulting from a reorganization of the Predecessor Fund with and into the fund on April __, 2017.
| Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment) | Class A | Class I | Class T |
| Management Fees | 0.50% | 0.50% | 0.50% |
| Distribution and Shareholder Servicing (12b-1) Fees | 0.15% | None | 0.25% |
| Other Expenses | 0.25% (a) | 0.24% (a) | 0.25% (b) |
| Acquired Fund Fees and Expenses | 0.01% | 0.01% | 0.01% |
| Total Annual Fund Operating Expenses | 0.91% | 0.75% | 1.01% |
| Less: Fee Waivers and/or Expense Reimbursements (c) | -0.11% | -0.09% | -0.21% |
| Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (c) | 0.80% | 0.66% | 0.80% |
| (a) | Restated to reflect current fees and expenses. |
| (b) | Estimated for current fiscal year, as annualized. |
| (c) | The fund's investment adviser has contractually agreed to limit the fund's total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occurring expenses (such as litigation) and acquired fund fees and expenses, if any) |
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| so that such expenses do not exceed __% for Class A Shares, __% for Class I Shares and __% for Class T Shares through July __, 2019. Following the contractual period, the adviser may discontinue these expense reimbursement arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed under these arrangements for a period of three years following the date on which such reimbursement occurred. |
Example
This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. It shows your costs if you sold your shares at the end of the period or continued to hold them. The example also assumes that your investment has a 5% return each year, that the fund’s operating expenses remain the same and that the expense reimbursement agreement remains in place for the contractual period. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
| Share Status | 1 Year | 3 Years | 5 Years | 10 Years | |||||
| Class A | Sold or Held | $ | 553 | $ | 730 | $ | 934 | $ | 1,522 |
| Class I | Sold or Held | $ | 67 | $ | 221 | $ | 399 | $ | 913 |
| Class T | Sold or Held | $ | 330 | $ | 522 | $ | 753 | $ | 1,417 |
Portfolio Turnover
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the fund’s performance. During the most recent fiscal year, the Predecessor Fund’s portfolio turnover rate was 48% of the average value of its portfolio.
Investments, Risks and Performance
Principal Investment Strategies
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities, including securities subject to the U.S. federal alternative minimum tax, with income exempt from regular U.S. federal income tax and Virginia commonwealth income tax. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In addition, the fund may invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk by buying investment grade (BBB-/Baa3 or better) securities. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued sectors and less in overvalued sectors.
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The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser expects that the fund’s average-weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Principal Risks
The fund may not achieve its objective(s), and it is not intended to be a complete investment program. The value of the fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of the fund’s investments decreases, you will lose money. Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected, and investments may fail to perform as the subadviser expects. As a result, the value of your shares may decrease. Purchase and redemption activities by fund shareholders may impact the management of the fund and its ability to achieve its investment objective(s). The redemption by one or more large shareholders or groups of shareholders of their holdings in the fund could have an adverse impact on the remaining shareholders in the fund including by accelerating the realization of capital gains and increasing the fund's transaction costs. The principal risks of investing in the fund are:
| · | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| · | Geographic Concentration Risk. The risk that events negatively affecting the geographic location where the fund focuses its investments will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Interest Rate Risk. The risk that when interest rates rise, the values of the fund’s debt securities, especially those with longer maturities, will fall. |
| · | Market Volatility Risk. The risk that the value of the securities in which the fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods. |
| · | Municipal Bond Market Risk. The risk that events negatively impacting a particular municipal security, or the municipal bond market in general, will cause the value of the fund’s shares to decrease, perhaps significantly. |
| · | Tax-Exempt Securities. The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities, or that the tax-exempt status of such securities may be lost or limited. |
| · | Tax Liability Risk. The risk that noncompliant conduct by a municipal bond issuer, or certain adverse interpretations or actions by a government or tax authority, could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. |
| · | Unrated Fixed Income Securities Risk. The risk that the subadviser will be unable to accurately assess the quality of an unrated fixed income security, so that the fund invests in a security with greater risk than intended, or that the liquidity of unrated fixed income securities in which the fund invests will be hindered, making it difficult for the fund to sell them. |
Performance Information
The bar chart and table below provide some indication of the potential risks of investing in the fund. The fund’s past performance, before and after taxes, is not necessarily an indication of how the fund will perform in the future. The fund has adopted the past performance of the Predecessor Fund as its own. The Predecessor Fund and the fund have identical investment objectives and strategies.
The bar chart shows changes in the fund’s performance from year to year over a 10-year period. The table shows how the fund’s average annual returns compare to those of a broad-based securities market index that reflects the market sectors in which the fund invests. Updated performance information is available at [ virtus.com or by calling 800-243-1574] .
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Calendar year total returns for Class I Shares
Returns do not reflect sales charges applicable to other share classes and would be lower if they did.
Year-to-date performance (through December 31, 2016) is __%
Average Annual Total Returns (for the periods ended 12/31/16)
Returns reflect deduction of maximum sales charges and full redemption at end of periods shown.
| 1 Year | 5 Years | 10 Years | |
| Class I | |||
| Return Before Taxes | |||
| Return After Taxes on Distributions | |||
| Return After Taxes on Distributions and Sale of Fund Shares | |||
| Class A | |||
| Return Before Taxes | |||
| Bloomberg Barclays U.S. Municipal Bond 1-15 Year Blend Index (reflects no deduction for mutual fund fees or expenses) |
The Bloomberg Barclays U.S. Municipal Bond 1-15 Year Blend Index is composed of tax-exempt bonds with maturities ranging between 1-15 years. The index is calculated on a total return basis. The index is unmanaged and not available for direct investment.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. After-tax returns are shown only for Class I Shares; after-tax returns for other classes will vary. Actual after-tax returns depend on the investor’s tax situation and may differ from those shown. After-tax returns are not relevant to investors who hold fund shares in tax-deferred accounts or to shares held by non-taxable entities. In certain cases, the Return After Taxes on Distributions and Sale of Fund Shares for a period may be higher than other return figures for the same period. This will occur when a capital loss is realized upon the sale of fund shares and provides an assumed tax benefit that increases the return.
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Management
The fund’s investment adviser is RidgeWorth Capital Management LLC.
The fund’s subadviser is Seix Investment Advisors, LLC (“Seix”).
Portfolio Management
| · | Chris Carter , CFA, Director and Portfolio Manager of Seix, has managed the fund since 2011. |
Purchase and Sale of Fund Shares
Minimum initial investments applicable to Class A Shares:
| • | $2,500, generally |
| • | $100 for Individual Retirement Accounts (IRAs), systematic purchase or exchange accounts |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
Minimum additional investments applicable to Class A Shares:
| • | $100, generally |
| • | No minimum for defined contribution plans, asset-based fee programs, profit-sharing plans or employee benefit plans |
For Class I Shares, the minimum initial purchase is $100,000; there is no minimum for additional purchases.
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
In general, you may buy or sell shares of the fund by mail or telephone on any business day. You also may buy and sell shares through a financial advisor, broker-dealer or other financial intermediary.
Taxes
Distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from the federal income tax. Such net investment income attributable to “private activity” bonds (other than private activity bonds issued in 2009 or 2010) may be a preference item for purposes of the federal alternative minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
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Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your financial advisor to recommend the fund over another investment. Ask your financial advisor or visit your financial intermediary’s Web site for more information.
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More Information About Fund Expenses
RidgeWorth Capital Management LLC, to be renamed Virtus Fund Advisers, LLC (“RidgeWorth”) has contractually agreed to limit the total operating expenses (excluding front-end or contingent deferred loads, taxes, leverage expenses, interest, brokerage commissions, expenses incurred in connection with any merger or reorganization, unusual or infrequently occuring expenses (such as litigation) and acquired fund fees and expenses, if any) of the funds so that expenses do not exceed, on an annualized basis, the amounts indicated in the following table.
[To be completed in 485(b) filing]
|
|
Class
A
Shares |
Class
C
Shares |
Class
R
Shares |
Class
I
Shares |
Class
IS
Shares |
Class
T
Shares |
Through
Date |
| Investment Grade Funds | |||||||
| Virtus Seix Core Bond Fund | N/A | July __, 2019 | |||||
| Virtus Seix Corporate Bond Fund | N/A | N/A | July __, 2019 | ||||
| Virtus Seix Total Return Bond Fund | N/A | July __, 2019 | |||||
| Virtus Seix U.S. Mortgage Fund | N/A | N/A | July __, 2019 | ||||
| Short Duration Funds | |||||||
| Virtus Seix Limited Duration Fund | N/A | N/A | N/A | N/A | N/A | July __, 2019 | |
| Virtus Seix Short-Term Bond Fund | N/A | N/A | July __, 2019 | ||||
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix Ultra-Short Bond Fund | N/A | N/A | N/A | N/A | July __, 2019 | ||
| High Yield Funds | |||||||
| Virtus Seix Floating Rate High Income Fund | N/A | July __, 2019 | |||||
| Virtus Seix High Income Fund | N/A | July __, 2019 | |||||
| Virtus Seix High Yield Fund | N/A | July __, 2019 | |||||
| Municipal Bond Funds | |||||||
| Virtus Seix Georgia Tax-Exempt Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix High Grade Municipal Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix North Carolina Tax-Exempt Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix Short-Term Municipal Bond Fund | N/A | N/A | N/A | July __, 2019 | |||
| Virtus Seix Virginia Intermediate Municipal Bond Fund | N/A | N/A | N/A | July __, 2019 |
Following the contractual period, RidgeWorth may discontinue these and/or prior arrangements at any time. Under certain conditions, the adviser may recapture operating expenses reimbursed
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under these arrangements for a period of three years following the time such reimbursement occurred, provided that the recapture does not cause the applicable fund(s) to exceed its expense limit in effect at the time of the waiver/reimbursement or recapture.
For those funds operating under an expense reimbursement arrangement and/or fee waiver during the prior fiscal year, total (net) fund operating expenses, including acquired fund fees and expenses, if any, after effect of any expense reimbursement and/or fee waiver were:
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Class
A
Shares |
Class
C
Shares |
Class
R
Shares |
Class
I
Shares |
Class
IS
Shares |
Class
T
Shares |
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| Investment Grade Funds | ||||||
| Virtus Seix Core Bond Fund | N/A | |||||
| Virtus Seix Corporate Bond Fund | N/A | N/A | ||||
| Virtus Seix Total Return Bond Fund | N/A | |||||
| Virtus Seix U.S. Mortgage Fund | N/A | N/A | ||||
| Short Duration Funds | ||||||
| Virtus Seix Limited Duration Fund | N/A | N/A | N/A | N/A | N/A | |
| Virtus Seix Short-Term Bond Fund | N/A | N/A | ||||
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix Ultra-Short Bond Fund | N/A | N/A | N/A | N/A | ||
| High Yield Funds | ||||||
| Virtus Seix Floating Rate High Income Fund | N/A | |||||
| Virtus Seix High Income Fund | N/A | |||||
| Virtus Seix High Yield Fund | N/A | |||||
| Municipal Bond Funds | ||||||
| Virtus Seix Georgia Tax-Exempt Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix High Grade Municipal Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix North Carolina Tax-Exempt Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix Short-Term Municipal Bond Fund | N/A | N/A | N/A | |||
| Virtus Seix Virginia Intermediate Municipal Bond Fund | N/A | N/A | N/A |
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More Information About Investment Objectives and Principal Investment Strategies
The investment objectives and principal strategies of each fund are described in this section. Each of the following funds has either a fundamental or a non-fundamental investment objective as noted below. A fundamental investment objective may only be changed with shareholder approval. A non-fundamental investment objective may be changed by the Board of Trustees of that fund without shareholder approval. If a fund’s investment objective is changed, the prospectus will be supplemented to reflect the new investment objective and shareholders will be provided with at least 60 days advance notice of such change. There is no guarantee that a fund will achieve its objective(s).
Please see the statement of additional information (“SAI”) for additional information about the securities and investment strategies described in this prospectus and about additional securities and investment strategies that may be used by the funds.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Principal Investment Strategies:
The fund invests in various types of income-producing debt securities including mortgage- and asset-backed securities, government and agency obligations, and corporate obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt, rated investment grade (BBB-/Baa3 or better). The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade, or unrated securities that the subadviser believes are of comparable quality.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”).
The fund can hold up to 5% of its net assets in securities that are downgraded below investment grade. The fund may also invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser generally selects a greater weighting in corporate obligations and mortgage-backed securities relative to the fund’s comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues.
The subadviser anticipates that the fund’s modified-adjusted duration will mirror that of the Bloomberg Barclays U.S. Aggregate Bond Index, plus or minus 20%. For example, if the duration of the Bloomberg Barclays U.S. Aggregate Bond Index is 5 years, the fund’s duration may be 4–6 years. As of July 1, 2016, the duration of the Bloomberg Barclays U.S. Aggregate Bond Index was 5.47 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility.
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In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters, and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may also utilize Treasury Inflation Protection Securities (“TIPS”) opportunistically. The fund may count the value of certain derivatives with investment grade fixed income characteristics and TIPS towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Principal Investment Strategies:
The fund primarily invests in a diversified portfolio of U.S. dollar denominated corporate obligations and other fixed income securities that are rated investment grade (BBB-/Baa3 or better) or unrated securities that the subadviser believes are of comparable quality.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in corporate bonds. The fund may also invest in U.S. Treasury and agency obligations, floating rate loans, and below investment grade, high yield debt obligations (sometimes referred to as “junk bonds”), including emerging market securities. The fund may invest in U.S. dollar denominated obligations of U.S. and non-U.S. issuers. The fund may invest a portion of its assets in securities that are restricted as to resale.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”). The fund will maintain an overall credit quality of investment grade or better.
Buy and sell decisions are based on a wide number of factors that determine the risk-reward profile of each security within the context of the broader portfolio. The subadviser attempts to identify investment grade corporate bonds offering above-average total return. In selecting corporate debt investments for purchase and sale, the subadviser seeks out companies with good fundamentals and above-average return prospects that are currently priced at attractive levels. The primary basis for security selection is the potential income offered by the security relative to the subadviser’s assessment of the issuer’s ability to generate the cash flow required to meet its obligations. The subadviser employs a “bottom-up” approach, identifying investment opportunities based on the underlying financial and economic fundamentals of the specific issuer.
The subadviser anticipates that the fund’s modified-adjusted-duration will mirror that of the Barclays U.S. Corporate Investment Grade Index, plus or minus 20%. For example, if the duration of the Barclays U.S. Corporate Investment Grade Index is 5 years, the fund’s duration may be 4–6 years. As of July 1, 2016, the Barclays U.S. Corporate Investment Grade Index duration was 7.49 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility.
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In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with corporate bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in corporate bonds.
While the fund generally does not invest in equity securities, equity securities may be obtained through a restructuring of a debt security held in the fund and may be retained in the fund if the subadviser deems it to be in the fund’s best interests.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Principal Investment Strategies:
The fund invests in various types of income-producing debt securities including mortgage- and asset-backed securities, government and agency obligations, corporate obligations and floating rate loans. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in fixed income securities. These securities will be chosen from the broad universe of available fixed income securities rated investment grade (BBB-/Baa3 or better), or unrated securities that the subadviser believes are of comparable quality.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”).
The fund may invest up to 20% of its net assets in below investment grade, high yield debt obligations (sometimes referred to as “junk bonds”). The fund may also invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
The subadviser anticipates that the fund’s modified-adjusted duration will mirror that of the Barclays U.S. Aggregate Bond Index, plus or minus 20%. For example, if the duration of the Barclays U.S. Aggregate Bond Index is 5 years, the fund’s duration may be 4 to 6 years. As of July 1, 2016, the duration of the Barclays U.S. Aggregate Bond Index was 5.47 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility.
In selecting investments for purchase and sale, the subadviser generally selects a greater weighting in corporate obligations and mortgage-backed securities relative to the fund’s comparative benchmark, and a lower relative weighting in U.S. Treasury and government agency issues.
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In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in fixed income securities.
While the fund generally does not invest in equity securities, equity securities may be obtained through a restructuring of a debt security held in the fund and may be retained in the fund if the subadviser deems it to be in the fund’s best interests.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in U.S. government agency mortgage-backed securities, such as the Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”) and collateralized mortgage obligations. The fund may invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
Buy and sell decisions are based on a wide number of factors that determine the risk-reward profile of each security within the context of the broader portfolio. In selecting investments for purchase and sale the subadviser attempts to identify mortgage securities that it expects to perform well in rising and falling markets, such as those which have stable prepayments, call protection, below par prices, and refinancing barriers. The subadviser also attempts to reduce the risk that the underlying mortgages are prepaid by focusing on securities that it believes are less prone to this risk. For example, FNMA or GNMA securities that were issued years ago may be less prone to prepayment risk because there have been many opportunities for refinancing.
The subadviser anticipates that the fund’s modified-adjusted duration will mirror that of the Barclays U.S. Mortgage-Backed Securities Index, plus or minus 20%. For example, if the duration of the Barclays U.S. Mortgage-Backed Securities Index is 5 years, the fund’s duration may be 4 to 6 years. As of July 1, 2016, the duration of the Barclays U.S. Mortgage-Backed Securities Index was 2.45 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility. The fund may invest a portion of its assets in securities that are restricted as to resale.
In addition, to implement its investment strategy, the fund may buy or sell, to a limited extent, derivative instruments (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk and credit risk. Further, the fund may utilize exchange traded futures to manage interest rate exposure.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by investing, without limit, in cash and cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
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Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking current income, while preserving liquidity and principal.
Principal Investment Strategies:
The fund invests in U.S. dollar-denominated, investment grade (BBB-/Baa3 or better) fixed income securities, including corporate and bank obligations, government securities, and mortgage-and asset-backed securities of U.S. and non-U.S. issuers, rated A or better, or unrated securities that the subadviser believes are of comparable quality.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”).The fund’s investment in non-U.S. issuers may at times be significant.
The fund will maintain an average credit quality of AA and all securities held in the fund will have interest rate durations of 180 days or less. For floating rate notes, the interest rate duration will be based on the next interest rate reset date. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility. The fund may invest a portion of its assets in securities that are restricted as to resale.
The subadviser attempts to identify U.S. dollar-denominated, investment grade fixed income securities that offer high current income while preserving liquidity and principal. In selecting investments for purchase and sale, the subadviser emphasizes securities that are within the targeted segment of the U.S. dollar-denominated, fixed income securities markets and will generally focus on investments that have good business prospects, credit strength, stable cash flows and effective management. The subadviser may retain securities if the rating of the security falls below credit quality of A and the subadviser deems retention of the security to be in the best interests of the fund.
In addition, to implement its investment strategy, the fund may buy or sell, to a limited extent, derivative instruments (such as credit linked notes, futures, options, inverse floaters, swaps and warrants) to use as a substitute for a purchase or sale of a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk and credit risk.
While the fund generally does not invest in equity securities, equity securities may be obtained through a restructuring of a debt security held in the fund and may be retained in the fund if the subadviser deems it to be in the fund’s best interests.
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Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of short- to medium-term investment grade (BBB-/Baa3 or better) U.S. Treasury, corporate debt, mortgage-backed and asset-backed securities. These securities may be rated investment grade by at least one national securities rating agency or may be unrated securities that the subadviser believes are of comparable quality. The fund expects that it will normally maintain an effective maturity of 3 years or less. The fund’s investment in non-U.S. issuers may at times be significant.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”).
The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
The fund may invest a portion of its assets in securities that are restricted as to resale.
As a result of its investment strategies, the fund’s portfolio turnover rate may be 100% or more.
In selecting securities for purchase and sale, the subadviser attempts to identify securities that are expected to offer a comparably better investment return for a given level of risk. For example, short-term bonds generally have better returns than money market instruments with a fairly modest increase in risk and/or volatility. The subadviser manages the fund from a total return perspective. That is, the subadviser makes day-to-day investment decisions for the fund with a view towards maximizing returns. The subadviser analyzes, among other things, yields, market sectors and credit risk in an effort to identify attractive investments with attractive risk/reward trade-offs.
The subadviser anticipates that the fund’s modified-adjusted duration will mirror that of the Barclays 1-3 Year Government/ Credit Index, plus or minus 20%. For example, if the duration of the Barclays 1-3 Government/Credit Index is 1.5 years, the fund’s duration may be 1.2 to 1.8 years. As of July 1, 2016, the duration of the Barclays 1-3 Year Government/Credit Index was 1.90 years.
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Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of 5 years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility. The fund may invest a portion of its assets in securities that are restricted as to resale.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Virtus Seix U.S. Government Securities Ultra-Short Bond Fund
Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize current income consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in short duration U.S. government securities. These securities may include, but are not limited to, U.S. Treasury securities, U.S. agency securities, U.S. agency mortgage-backed securities, repurchase agreements and other U.S. government securities.
The fund expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of five years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility.
In selecting securities for purchase and sale, the subadviser attempts to maximize income by identifying securities that offer an acceptable yield for a given maturity.
The fund may use U.S. Treasury securities futures as a vehicle to adjust duration and manage its interest rate exposure.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate risk.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize current income consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in short duration fixed income securities. These securities may include, but are not limited to, U.S. Treasury and agency securities, obligations of supranational entities and foreign governments, domestic and foreign-corporate debt obligations, taxable-municipal debt securities, mortgage-backed and asset-backed securities, and repurchase agreements. The fund’s investment in foreign issuers may at times be significant.
A security’s rating will be governed by the Barclays methodology as follows: when Standard & Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. provide a rating, the subadviser will use the middle rating of the three; if only two of those three rating agencies rate the security, the subadviser will use the lowest rating; if only one rating agency assigns a rating, the subadviser will use that rating. If none of the three provide a rating, the subadviser may rely on a rating provided by another nationally recognized statistical ratings organization (“NRSRO”).
The fund normally expects to maintain an average effective duration between 3 months and 1 year. Individual purchases will generally be limited to securities with an effective duration of less than 5 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of five years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility. The fund may invest a portion of its assets in securities that are restricted as to resale.
In selecting investments for purchase and sale, the subadviser attempts to maximize income by identifying securities that offer an acceptable yield for a given level of credit risk and maturity. The subadviser attempts to identify short duration securities that offer a comparably better return potential and yield than money market funds. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
In addition, to implement its investment strategy, the fund may buy or sell, derivative instruments (such as swaps, including credit default swaps, futures and options) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as credit and interest rate risk.
Temporary Defensive Strategy: During periods of rising interest rates, unstable pricing and currency exchange, or in response to extreme market fluctuations, the subadviser, at its
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discretion, may take temporary defensive positions that are inconsistent with its principal investment strategies by investing part or all of the fund’s assets in cash or cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of attempting to provide a high level of current income.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a combination of first- and second-lien senior floating rate loans and other floating rate debt securities.
These loans are loans made by banks and other large financial institutions to various companies and are senior in the borrowing companies’ capital structure. Coupon rates are generally floating, not fixed, and are tied to a benchmark lending rate, the most popular of which is the London Interbank Offered Rate (“LIBOR”) or are set at a specified floor, whichever is higher. LIBOR is based on rates that contributor banks in London charge each other for interbank deposits and is typically used to set coupon rates on floating rate loans and debt securities. The interest rates of these floating rate loans and debt securities vary periodically based upon a benchmark indicator of prevailing interest rates.
The fund invests all or substantially all of its assets in floating rate loans and debt securities that are rated below investment grade (BBB-/Baa3 or better) by the Merrill Composite Rating or in comparable unrated securities. The fund may also invest up to 20% of its net assets in any combination of junior debt securities or securities with a lien on collateral lower than a senior claim on collateral, high yield fixed-rate bonds, investment grade fixed income debt obligations, asset-backed securities (such as special purpose trusts investing in bank loans), money market securities and repurchase agreements. The fund may invest a portion of its assets in securities that are restricted as to resale.
In selecting investments for purchase and sale, the subadviser will emphasize loans and securities which are within the segment of the high yield market it has targeted, which are loans and securities rated below investment grade or unrated loans and securities that the subadviser believes are of comparable quality.
The fund may invest up to 20% of its total assets in senior loans made to non-U.S. borrowers provided that no more than 5% of the portfolio’s loans are non-U.S. dollar denominated. The fund may also engage in certain hedging transactions.
Some types of senior loans in which the fund may invest require that an open loan for a specific amount be continually offered to a borrower. These types of senior loans are commonly referred to as revolvers. Because revolvers contractually obligate the lender (and therefore those with an interest in the loan) to fund the revolving portion of the loan at the borrower’s discretion, the fund must have funds sufficient to cover its contractual obligation. Therefore the fund will maintain, on a daily basis, high-quality, liquid assets in an amount at least equal in value to its contractual obligation to fulfill the revolving senior loan. The fund will not encumber any assets
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that are otherwise encumbered. The fund will limit its investments in such obligations to no more than 25% of the fund’s total assets.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures, credit linked notes, options and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with floating rate debt or high yield bond characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in a combination of first- and second-lien senior floating rate loans and other floating rate debt securities.
While the fund generally does not invest in equity securities, equity securities may be obtained through a restructuring of a debt security held in the fund and may be retained in the fund if the subadviser deems it to be in the fund’s best interests.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding cash or investing, without limit, in cash equivalents or other fixed income securities. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking high current income and, secondarily, total return (comprised of capital appreciation and income).
Principal Investment Strategies:
The fund invests primarily in a diversified portfolio of higher yielding, lower-rated income-producing debt instruments, including corporate obligations, floating rate loans and other debt obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market corporate debt. The fund’s investment in non-U.S. issuers may at times be significant. The fund will invest at least 65%, and may invest up to 100%, of its assets in securities rated below investment grade by the Merrill Composite Rating or in unrated securities that the subadviser believes are of comparable quality. Such securities are commonly known as “junk bonds” and present greater risks than investment grade debt securities. The fund may also invest a portion of its assets in securities that are restricted as to resale. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser employs a research driven process designed to identify value areas within the high yield market. The subadviser seeks to identify securities that generally meet the following criteria: (i) industries that have sound fundamentals; (ii) companies that have good business prospects and increasing credit strength; and (iii) issuers with stable or growing cash flows and effective management.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as foreign currency forward contracts, swaps, including credit default swaps, futures, credit linked notes, options, inverse floaters and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 65% of its net assets in non-investment grade fixed income securities.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding cash or investing, without limit, in cash equivalents or other fixed income securities. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking high income and, secondarily, capital appreciation.
Principal Investment Strategies:
Under normal circumstances, the fund invests in various types of lower-rated, higher yielding debt instruments, including corporate obligations, floating rate loans and other debt obligations. The fund may invest in debt obligations of U.S. and non-U.S. issuers, including emerging market debt. The fund’s investment in non-U.S. issuers may at times be significant.
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in high yield securities. These securities will be chosen from the broad universe of available U.S. dollar denominated, high yield securities rated below investment grade by either the Merrill Composite Rating or unrated securities that the subadviser believes are of comparable quality. Such securities are commonly known as “junk bonds” and present greater risks than investment grade bonds. Although the fund seeks to achieve its investment objective primarily through investment in high yield securities, the fund may invest up to 20% of its net assets in investment grade securities.
The fund will be managed with a duration that is close to the fund’s comparative benchmark, the Merrill Lynch U.S. High Yield BB/B Rated Constrained Index, which is generally between 3 and 6 years. Duration measures a bond or fund’s sensitivity to interest rate changes and is expressed as a number of years. The higher the number, the greater the risk. Under normal circumstances, for example, if a portfolio has a duration of five years, its value will change by 5% if rates change by 1%. Shorter duration bonds result in lower expected volatility. The fund may also invest a portion of its assets in securities that are restricted as to resale.
In selecting investments for purchase and sale, the subadviser employs a research driven process designed to identify value areas within the high yield market and attempts to identify lower-rated, higher yielding bonds offering above-average total return. Additionally, the subadviser will emphasize securities which are within the segment of the high yield market it has targeted for emphasis, which are “BB” and “B” rated issuers. The subadviser seeks to identify securities that generally meet the following criteria: (1) industries that have sound fundamentals; (2) companies that have good business prospects and increasing credit strength; and (3) issuers with stable or growing cash flows and effective management.
In addition, to implement its investment strategy, the fund may buy or sell derivative instruments (such as swaps, including credit default swaps, futures and warrants) to use as a substitute for a purchase or sale of a position in the underlying assets and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or credit risks. The fund may count the value of certain derivatives with below investment grade fixed income characteristics towards its policy to invest, under normal circumstances, at least 80% of its net assets in high yield securities.
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While the fund generally does not invest in equity securities, equity securities may be obtained through a restructuring of a debt security held in the fund and may be retained in the fund if the subadviser deems it to be in the fund’s best interests.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding cash or investing, without limit, in cash equivalents or other fixed income securities. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking current income exempt from federal and state income taxes for Georgia residents consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities with income exempt from U.S. federal and Georgia state income taxes. Issuers of these securities can be located in Georgia, Puerto Rico and other U.S. territories and possessions. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued market sectors and less in overvalued sectors taking into consideration maturity, sector, credit, state and supply and demand levels. There are no limits on the fund’s average-weighted maturity or on the remaining maturities of individual securities. The subadviser tries to diversify the fund’s holdings within the State of Georgia.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade (BBB-/Baa3 or better) municipal securities, including securities subject to the U.S. federal alternative minimum tax, with income exempt from regular U.S. federal income tax. The fund may invest its remaining assets in cash, cash equivalents and certain taxable debt securities. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the Fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking to maximize high total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Principal Investment Strategies:
The fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in investment grade (BBB-/Baa3 or better) tax-exempt obligations, such as municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities. As a result of its investment strategy, the fund’s portfolio turnover rate may be 100% or more.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The subadviser anticipates that the fund’s average-weighted maturity will range from 4 to 10 years but there is no limit on the maturities of individual securities. The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking current income exempt from federal and state income taxes for North Carolina residents consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities with income exempt from U.S. federal and North Carolina state income taxes. Issuers of these securities can be located in North Carolina, Puerto Rico and other U.S. territories and possessions. The fund may invest up to 20% of its assets in securities subject to the U.S. federal alternative minimum tax. The fund may also invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued market sectors and less in overvalued sectors taking into consideration maturity, sector, credit, state and supply and demand levels. There are no limits on the fund’s average-weighted maturity or on the remaining maturities of individual securities.
The subadviser tries to diversify the fund’s holdings within the State of North Carolina. The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit.
The fund invests in securities rated investment grade (BBB-/Baa3 or better) by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of maximizing total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities, including securities subject to the U.S. federal alternative minimum tax, with the income exempt from regular U.S. federal income tax. The fund will invest primarily in investment grade (BBB-/Baa3 or better) short-term municipal securities. The issuers of these securities may be located in any U.S. state, territory or possession. The fund may also invest a portion of its net assets in certain taxable debt securities. The fund expects that it will normally maintain an effective maturity of 3 years or less.
In selecting investments for purchase and sale, the subadviser tries to manage risk as much as possible. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued municipal securities and less in overvalued municipal securities taking into consideration maturity, sector, credit, state and supply and demand levels.
The subadviser also attempts to identify and invest in municipal issuers with improving credit and avoid those with deteriorating credit. The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the Fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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Non-Fundamental Investment Objective:
The fund has an investment objective of seeking current income exempt from federal and state income taxes for Virginia residents consistent with capital preservation.
Principal Investment Strategies:
Under normal circumstances, the fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in municipal securities, including securities subject to the U.S. federal alternative minimum tax, with income exempt from regular U.S. federal income tax and Virginia commonwealth income tax. Issuers of these securities can be located in Virginia, Puerto Rico and other U.S. territories and possessions. In addition, the fund may invest a portion of its net assets in certain taxable debt securities.
In selecting investments for purchase and sale, the subadviser tries to manage risk by buying investment grade(BBB-/Baa3 or better) securities. Based on the subadviser’s analysis of municipalities, credit risk, market trends and investment cycles, the subadviser attempts to invest more of the fund’s assets in undervalued sectors and less in overvalued sectors.
The fund invests in securities rated investment grade by at least one national securities rating agency or unrated securities that the subadviser believes are of comparable quality. The subadviser expects that the fund’s average-weighted maturity will range from 5 to 10 years but there is no limit on the maturities of individual securities. The subadviser may retain securities if the rating of the security falls below investment grade and the subadviser deems retention of the security to be in the best interests of the fund.
Temporary Defensive Strategy : If the subadviser does not believe that the market conditions are favorable to the fund’s principal investment strategies, the fund may take temporary defensive positions that are inconsistent with its principal investment strategies by holding taxable securities, retaining cash or investing part or all of its assets in cash equivalents. When this allocation happens, the fund may not achieve its investment objective.
Please see “More Information About Risks Related to Principal Investment Strategies” for information about the risks of investing in the fund. Please refer to “Additional Investment Techniques” for other investment techniques of the fund.
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More Information About Risks Related to Principal Investment Strategies
Each of the funds may not achieve its objective, and each is not intended to be a complete investment program.
Generally, the value of a fund’s investments that supports your share value may decrease. If between the time you purchase shares and the time you sell shares the value of such fund’s investments decreases, you will lose money.
Investment values can decrease for a number of reasons. Conditions affecting the overall economy, specific industries or companies in which the fund invests can be worse than expected and investments may fail to perform as the adviser or a subadviser expects. As a result, the value of your shares may decrease.
Specific risks of investing in the funds are identified in the below table and described in detail following the table.
| Risks |
Virtus Seix Core Bond Fund |
Virtus Seix Corporate Bond Fund | Virtus Seix Total Return Bond Fund | Virtus Seix U.S. Mortgage Fund | Virtus Seix Limited Duration Fund | Virtus Seix Short-Term Bond Fund | Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | Virtus Seix Ultra-Short Bond Fund | Virtus Seix Floating Rate High Income Fund | Virtus Seix High Income Fund | Virtus Seix High Yield Fund | Virtus Seix Georgia Tax-Exempt Bond Fund | Virtus Seix High Grade Municipal Bond Fund | Virtus Seix Investment Grade Tax-Exempt Bond Fund | Virtus Seix North Carolina Tax-Exempt Bond Fund | Virtus Seix Short-Term Municipal Bond Fund | Virtus Seix Virginia Intermediate Municipal Bond Fund |
| Debt Securities | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X |
| Call | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X |
| Credit | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X |
| Interest Rate | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X |
| Derivatives | X | X | X | X | X | X | X | X | X | X | |||||||
| Foreign Investing | X | X | X | X | X | X | X | X | X | ||||||||
| Currency Rate | X | X | X | X | X | X | X | X | X | ||||||||
|
Emerging Market Investing |
X | X | X | ||||||||||||||
| Geographic Concentration | X | X | X | ||||||||||||||
| High Yield-High Risk Securities (Junk Bonds) | X | X | X | X | X | ||||||||||||
| Illiquid and Restricted Securities | X | X | X | X | X | X | X | X | X | ||||||||
| Inflation Protected Investing | X | ||||||||||||||||
| Loans | X | X | X | X | X | X | |||||||||||
| Market Volatility | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X |
| Mortgage-Backed and Asset-Backed Securities | X | X | X | X | X | X | X | ||||||||||
| Municipal Bond Market | X | X | X | X | X | X | |||||||||||
| Non-Diversification | X | ||||||||||||||||
| Portfolio Turnover | X | X | X | X | X | X | X | ||||||||||
| Short-Term Investments | X | X | X | X | X | ||||||||||||
| Tax-Exempt Securities | X | X | X | X | X | X | |||||||||||
| Tax Liability | X | X | X | X | X | X | |||||||||||
| Unrated Fixed Income Securities | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | X | |
| U.S. Government Securities | X | X | X | X | X | X | X | X | X | X |
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Debt Securities
Debt securities are subject to various risks, the most prominent of which are credit risk and interest rate risk. These risks can affect a security’s price volatility to varying degrees, depending upon the nature of the instrument. Risks associated with investing in debt securities include the following:
| • | Call Risk. There is a risk that issuers will prepay fixed rate obligations when interest rates fall. A fund holding callable securities therefore may be forced to reinvest in obligations with lower interest rates than the original obligations and otherwise may not benefit fully from the increase in value that other fixed income securities experience when rates decline. |
| • | Credit Risk. The risk that the issuer of a security will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the security to decline. Debt securities rated below investment grade are especially susceptible to this risk. |
| • | Interest Rate Risk. The values of debt securities usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the value of existing debt instruments, and rising interest rates generally decrease the value of existing debt instruments. Changes in a debt instrument’s value usually will not affect the amount of interest income paid to a fund, but will affect the value of the fund’s shares. Interest rate risk is generally greater for investments with longer maturities. |
Certain securities pay interest at variable or floating rates. Variable rate securities reset at specified intervals, while floating rate securities reset whenever there is a change in a specified index rate. In most cases, these reset provisions reduce the effect of changes in market interest rates on the value of the security. However, some securities do not track the underlying index directly, but reset based on formulas that can produce an effect similar to leveraging; others may also provide for interest payments that vary inversely with market rates. The market prices of these securities may fluctuate significantly when interest rates change.
Some investments give the issuer the option to call or redeem an investment before its maturity date. If an issuer calls or redeems an investment during a time of declining interest rates, a fund might have to reinvest the proceeds in an investment offering a lower yield, and therefore it might not benefit from any increase in value as a result of declining interest rates.
| • | Liquidity Risk. Certain debt securities may be substantially less liquid than many other securities, such as U.S. Government securities or common stocks. |
| • | Long-Term Maturities/Durations Risk. The risk that fixed income securities with longer maturities or durations may be subject to greater price fluctuations due to interest rate, tax law, and general market changes than securities with shorter maturities or durations. |
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Derivatives
Derivative transactions are contracts whose value is derived from the value of an underlying asset, index or rate, including futures, options, non-deliverable forwards, forward foreign currency exchange contracts and swap agreements. A fund may use derivatives to hedge against factors that affect the value of its investments, such as interest rates and foreign currency exchange rates. A fund may also utilize derivatives as part of its overall investment technique to gain or lessen exposure to various securities, markets, volatility, dividend payments and currencies.
Derivatives typically involve greater risks than traditional investments. It is generally more difficult to ascertain the risk of, and to properly value, derivative contracts. Many derivatives, and particularly those that are privately negotiated, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the fund. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions. Derivatives are usually less liquid than traditional securities and are subject to counterparty risk (the risk that the other party to the contract will default or otherwise not be able to perform its contractual obligations). In addition, some derivatives transactions may involve potentially unlimited losses.
Derivative contracts entered into for hedging purposes may also subject a fund to losses if the contracts do not correlate with the assets, indexes or rates they were designed to hedge. Gains and losses derived from hedging transactions are, therefore, more dependent upon the subadviser’s ability to correctly predict the movement of the underlying asset prices, indexes or rates.
As an investment company registered with the SEC, each fund is required to identify on its books (often referred to as “asset segregation”) liquid assets, or engage in other SEC-approved measures, to “cover” open positions with respect to certain kinds of derivative instruments. If a fund investing in such instruments has insufficient cash to meet such requirements, it may have to sell other investments, including at disadvantageous times.
Governments, agencies and/or other regulatory bodies may adopt or change laws or regulations that could adversely affect a fund’s ability to invest in derivatives as the fund’s subadviser intends. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), among other things, grants the Commodity Futures Trading Commission (the “CFTC”) and SEC broad rulemaking authority to implement various provisions of the Dodd-Frank Act including comprehensive regulation of the over-the-counter (“OTC”) derivatives market. The implementation of the Dodd-Frank Act could adversely affect a fund by placing limits on derivative transactions, and/or increasing transaction and/or regulatory compliance costs. For example, the CFTC has recently adopted new rules that will apply a new aggregation standard for position limit purposes, which may further limit a fund’s ability to trade futures contracts and swaps.
There are also special tax rules applicable to certain types of derivatives, which could affect the amount, timing and character of a fund’s income or loss and hence of its distributions to shareholders by causing holding period adjustments, converting short-term capital losses into long-term capital losses, and accelerating a fund’s income or deferring its losses. A fund’s use of derivatives may also increase the amount of taxes payable by shareholders or the resources required by the fund or its adviser and/or subadviser(s) to comply with particular regulatory requirements.
Foreign Investing
Investing in securities of non-U.S. companies involves special risks and considerations not typically associated with investing in U.S. companies, and the values of non-U.S. securities may be more volatile than those of U.S. securities.
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The values of non-U.S. securities are subject to economic and political developments in countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies, and to changes in currency exchange rates. Values may also be affected by restrictions on receiving the investment proceeds from a non-U.S. country.
In general, less information is publicly available about non-U.S. companies than about U.S. companies. Non-U.S. companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. Certain foreign issuers classified as passive foreign investment companies may be subject to additional taxation risk.
| • | Currency Rate Risk. Because the foreign securities in which a fund invests generally trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities. Because the value of each fund’s shares is calculated in U.S. dollars, it is possible for a fund to lose money by investing in a foreign security if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the fund’s holdings goes up. Generally, a strong U.S. dollar relative to such other currencies will adversely affect the value of the fund’s holdings in foreign securities. |
| • | Emerging Market Investing Risk. The risks of foreign investments are generally greater in countries whose markets are still developing than they are in more developed markets. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Since these markets are often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may also have policies that restrict investment by foreigners, or that prevent foreign investors from withdrawing their money at will. Certain emerging markets may also face other significant internal or external risks, including the risk of war and civil unrest. For all of these reasons, investments in emerging markets may be considered speculative. To the extent that a fund invests a significant portion of its assets in a particular emerging market, the fund will be more vulnerable to financial, economic, political and other developments in that country, and conditions that negatively impact that country will have a greater impact on the fund as compared with a fund that does not have its holdings concentrated in a particular country. |
Geographic Concentration Risk
The value of the investments of a fund that focuses its investments in a particular geographic location will be highly sensitive to financial, economic, political and other developments affecting the fiscal stability of that location, and conditions that negatively impact that location will have a greater impact on the fund as compared with a fund that does not have its holdings similarly concentrated. Events negatively affecting such location are therefore likely to cause the value of the fund’s shares to decrease, perhaps significantly.
High-Yield/High-Risk Fixed Income Securities (Junk Bonds)
Securities rated “BB” or below by S&P or Fitch, or “Ba” or below by Moody’s, may be known as “high-yield” securities and commonly referred to as “junk bonds.” The highest of the ratings among S&P, Fitch and Moody's is used to determine the security's classification. Such securities entail greater price volatility and credit and interest rate risk than investment grade securities. Analysis of the creditworthiness of high-yield/high-risk issuers is more complex than for higher-rated securities, making it more difficult for a fund's subadviser to accurately predict risk. There is a greater risk with high-yield/high-risk fixed income securities that an issuer will not be able to make principal and interest payments when due. If the fund pursues missed payments, there is a risk that fund expenses could increase. In addition, lower-rated securities may not trade as often and may be less liquid than higher-rated securities, especially during periods of economic uncertainty or change. As a result of all of these factors, these bonds are generally considered to be speculative.
Illiquid and Restricted Securities
Certain securities in which a fund invests may be difficult to sell at the time and price beneficial to the fund, for example due to low trading volumes or legal restrictions. When there is no willing buyer or a security cannot be readily sold, the fund may have to sell at a lower price or may be unable to sell the security at all. The sale of such securities may also require the fund to incur expenses in addition to those normally associated with the sale of a security.
In addition to this, certain shareholders, including affiliates of a fund’s investment adviser and/or subadviser(s), may from time to time own or control a significant percentage of the fund’s shares. Redemptions by these shareholders of their shares of the fund may increase the fund’s liquidity risk by causing the Fund to have to sell securities at an unfavorable time and/or price.
Inflation Protected Investing
The current market value of inflation-protected securities is not guaranteed and will fluctuate. Inflation-protected securities may react differently from other fixed income securities to changes in interest rates. Because interest rates on inflation-protected securities are adjusted for inflation, the values of these securities are not materially affected by inflation expectations. Therefore, the value of inflation-protected securities are anticipated to change in response to changes in “real” interest rates, which represent nominal (stated) interest rates reduced by the expected impact of inflation. Generally, the value of an inflation-protected security will fall when real interest rates rise and will rise when real interest rates fall.
Because the interest and/or principal payments on an inflation-protected security are adjusted periodically for changes in inflation, the income distributed by a fund invested in such securities may be irregular. Although the U.S. Treasury guarantees to pay at least the original face value of any inflation-protected securities the Treasury issues, other issuers may not offer the same guarantee. Also, inflation-protected securities, including those issued by the U.S. Treasury, are not protected against deflation. As a result, in a period of deflation, the inflation-protected securities held by a fund may not pay any income and the fund may suffer a loss. While inflation-protected securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in a fund’s value. If interest rates rise due to reasons other than inflation, a fund’s investment in these securities may not be protected to the extent that the increase is not reflected in the securities’ inflation measures. In addition, positive adjustments to principal generally will result in taxable income to a fund at the time of such adjustments (which generally would be distributed by the fund as part of its taxable dividends), even though the principal amount is not paid until maturity. There can be no assurance that the inflation index used will accurately measure the real rate of inflation in the prices of goods and services. A fund’s investments in inflation-linked securities may lose value in the event that the actual rate of inflation is different from the rate of the inflation index.
Loans
Investing in loans (including loan assignments, loan participations and other loan instruments) carries certain risks in addition to the risks typically associated with high-yield/high-risk fixed income securities. Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. In the event a borrower defaults, a fund’s access to the collateral may be limited or delayed by bankruptcy or other insolvency laws. There is a risk that the value of the collateral securing the loan may decline after a fund invests and that the collateral may not be sufficient to cover the amount owed to the fund. If the loan is unsecured, there is no specific collateral on which the fund can foreclose. In addition, if a secured loan is foreclosed, a fund may bear the costs and liabilities associated with owning and disposing of the collateral, including the risk that collateral may be difficult to sell.
Transactions in many loans settle on a delayed basis. As a result, sale proceeds related to the sale of loans may not be available to make additional investments or to meet the Fund’s redemption obligations until potentially a substantial period of time after the sale of the loans. No active trading market may exist for some loans, which may impact the ability of the Fund to realize full value in the event of the need to liquidate such assets. Adverse market conditions may impair the liquidity of some actively traded loans. Loans also may be subject to restrictions on resale, which can delay the sale and adversely impact the sale price. Difficulty in selling a loan can result in a loss. Loans made to finance highly leveraged corporate acquisitions may be especially vulnerable to adverse changes in economic or market conditions. Certain loans may not be considered “securities,” and purchasers, such as a fund, therefore may not be entitled to rely on the strong anti-fraud protections of the federal securities laws. With loan participations, a fund may not be able to control the exercise of any remedies that the lender would have under the loan and likely would not have any rights against the borrower directly, so that delays and expense may be greater than those that would be involved if a fund could enforce its rights directly against the borrower.
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Market Volatility
The value of the securities in which a fund invests may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be temporary or may last for extended periods.
Instability in the financial markets has exposed each fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments that it holds. In response to financial markets that experienced extreme volatility, and in some cases a lack of liquidity, the U.S. Government and other governments have taken a number of unprecedented actions, including acquiring distressed assets from financial institutions and acquiring ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear. Additional legislation or government regulation may also change the way in which funds themselves are regulated, which could limit or preclude a fund’s ability to achieve its investment objective.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities represent interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. Asset-backed securities represent interests in pools of underlying assets such as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. These two types of securities share many of the same risks.
The impairment of the value of collateral or other assets underlying a mortgage-backed or asset-backed security, such as that resulting from non-payment of loans, may result in a reduction in the value of such security and losses to a fund.
Early payoffs in the loans underlying such securities may result in a fund receiving less income than originally anticipated. The variability in prepayments will tend to limit price gains when interest rates drop and exaggerate price declines when interest rates rise. In the event of high prepayments, a fund may be required to invest proceeds at lower interest rates, causing the fund to earn less than if the prepayments had not occurred. Conversely, rising interest rates may cause prepayments to occur at a slower than expected rate, which may effectively change a security that was considered short- or intermediate-term into a long-term security. Long-term securities tend to fluctuate in value more widely in response to changes in interest rates than shorter-term securities.
Municipal Bond Market
The amount of public information available about municipal bonds is generally less than that of corporate equities or bonds, and the investment performance of a fund may be more dependent on the analytical abilities of the investment adviser than would be the case for a fund that does not invest in municipal bonds. The secondary market for municipal bonds also tends to be less well-developed and less liquid than many other securities markets, which may adversely affect the fund’s ability to sell its bonds at attractive prices. In addition, municipal obligations can experience downturns in trading activity, and the supply of municipal obligations may exceed the demand in the market. During such periods, the spread can widen between the price at which an obligation can be purchased and the price at which it can be sold. Less liquid obligations can become more difficult to value and be subject to erratic price movements. Economic and other events (whether real or perceived) can reduce the demand for certain investments or for investments generally, which may reduce market prices and cause the value of the fund’s shares to fall. The frequency and magnitude of such changes cannot be predicted. A fund may invest in municipal obligations that do not appear to be related, but in fact depend on the financial rating or support of a single government unit, in which case, events that affect one of the obligations will also affect the others and will impact the fund’s portfolio to a greater degree than if the fund’s investments were not so related. The increased presence of non-traditional participants in the municipal markets may lead to greater volatility in the markets.
Non-Diversification
A non-diversified investment company is not limited in the proportion of assets that it may invest in the securities of any one issuer. If the fund takes concentrated positions in a small number of issuers, the fund may be more susceptible to the risks associated with those issuers, or to a single economic, political, regulatory or other event affecting those issuers.
Portfolio Turnover Risk
A fund’s investment strategy may result in consistently frequently high turnover rate. A high portfolio turnover rate may result in correspondingly greater brokerage commission expenses and the distribution to shareholders of additional capital gains for tax purposes, some of which may be taxable at ordinary income rates. These factors may negatively affect the fund’s performance.
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Short-Term Investments
A fund may invest in short-term investments, which may include money market instruments, repurchase agreements, certificates of deposits and bankers’ acceptances and other short-term instruments that are not U.S. Government securities. These securities generally present less risk than many other investments, but they are generally subject to credit risk and may be subject to other risks as well.
Tax-Exempt Securities
The risk that tax-exempt securities may not provide a higher after-tax return than taxable securities or that the tax-exempt status of such securities may be lost or limited.
Tax Liability
The risk that distributions by a fund become taxable to shareholders as ordinary income due to noncompliant conduct by a municipal bond issuer, unfavorable changes in federal or state tax laws, or adverse interpretations of tax laws by applicable tax authorities. Such adverse interpretations or actions could cause interest from a security to become taxable, possibly retroactively, subjecting shareholders to increased tax liability. In addition, such adverse interpretations or actions could cause the value of a security, and therefore the value of a fund’s shares, to decline.
Unrated Fixed Income Securities
A fund’s subadviser has the authority to make determinations regarding the quality of such securities for the purposes of assessing whether they meet the fund’s investment restrictions. However, analysis of unrated securities is more complex than that of rated securities, making it more difficult for the subadviser to accurately predict risk. Unrated fixed income securities may not be lower in quality than rated securities, but due to their perceived risk they may not have as broad a market as rated securities, making it more difficult to sell unrated securities.
U.S. Government Securities
Obligations issued or guaranteed by the U.S. Government, its agencies, authorities and instrumentalities and backed by the full faith and credit of the United States only guarantee principal and interest will be timely paid to holders of the securities. The entities do not guarantee that the value of fund shares will increase, and in fact, the market values of such obligations may fluctuate. In addition, not all U.S. Government securities are backed by the full faith and credit of the United States; some are the obligation solely of the entity through which they are issued. There is no guarantee that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law.
The funds may buy other types of securities or employ other portfolio management techniques. Please refer to the SAI for more detailed information about these and other investment techniques of the funds.
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The Adviser
RidgeWorth Capital Management LLC, to be renamed Virtus Fund Advisers, LLC, located at [3333 Piedmont Road, Suite 1500, Atlanta, GA 30305] (the “Adviser”), serves as the investment adviser to the Funds. In addition to being an investment adviser registered with the Securities and Exchange Commission (the “SEC”), the Adviser is a money-management holding company with multiple style-focused investment boutiques. As of [December 31, 2016], the Adviser had approximately $[____] billion in assets under management.
Subject to the direction of the funds’ Board of Trustees, the Adviser is responsible for managing the funds’ investment programs and for the general operations of the funds, including oversight of the funds’ subadviser.
The Adviser has appointed and oversees the activities of Seix Investment Advisors LLC (“Seix” or the “Subadviser”) as the subadviser for the funds. The Subadviser manages the investments of each fund to conform with its investment policies as described in this prospectus.
Management Fees
Each fund pays the Adviser an investment management fee that is accrued daily against the value of the fund’s net assets at the following annual rates:
| Virtus Seix Core Bond Fund | |
| Virtus Seix Corporate Bond Fund | |
| Virtus Seix Floating Rate High Income Fund | |
| Virtus Seix Georgia Tax-Exempt Bond Fund | |
| Virtus Seix High Grade Municipal Bond Fund | |
| Virtus Seix High Income Fund | |
| Virtus Seix High Yield Fund | |
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | |
| Virtus Seix Limited Duration Fund | |
| Virtus Seix North Carolina Tax-Exempt Bond Fund | |
| Virtus Seix Short-Term Bond Fund | |
| Virtus Seix Short-Term Municipal Bond Fund | |
| Virtus Seix Total Return Bond Fund | |
| Virtus Seix Ultra-Short Bond Fund | |
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | |
| Virtus Seix U.S. Mortgage Fund | |
| Virtus Seix Virginia Intermediate Municipal Bond Fund |
In its last fiscal year, each fund paid fees to the Adviser at the following percentage of average net assets:
| Virtus Seix Core Bond Fund | |
| Virtus Seix Corporate Bond Fund |
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| Virtus Seix Floating Rate High Income Fund | |
| Virtus Seix Georgia Tax-Exempt Bond Fund | |
| Virtus Seix High Grade Municipal Bond Fund | |
| Virtus Seix High Income Fund | |
| Virtus Seix High Yield Fund | |
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | |
| Virtus Seix Limited Duration Fund | |
| Virtus Seix North Carolina Tax-Exempt Bond Fund | |
| Virtus Seix Short-Term Bond Fund | |
| Virtus Seix Short-Term Municipal Bond Fund | |
| Virtus Seix Total Return Bond Fund | |
| Virtus Seix Ultra-Short Bond Fund | |
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | |
| Virtus Seix U.S. Mortgage Fund | |
| Virtus Seix Virginia Intermediate Municipal Bond Fund |
The Subadviser
Seix, an affiliate of the Adviser, is located at One Maynard Drive, Suite 3200, Park Ridge, New Jersey 07656. Seix was established in 2008 as a wholly-owned subsidiary of the Adviser, and is an investment adviser registered with the SEC. Its predecessor, Seix Investment Advisors, Inc., was founded in 1992 and was independently owned until 2004 when the firm joined the Adviser as the institutional fixed income management division. As of [June 30, 2016], Seix had approximately $[25.1] billion in assets under management.
Seix is a fundamental, credit driven fixed income boutique specializing in investment grade and high yield bond and leveraged loan management. Seix has employed its bottom-up, research-oriented approach to fixed income management for over 20 years. Seix selects, buys and sells assets for the funds it subadvises under the supervision of the Adviser and the Board of Trustees.
The Adviser pays Seix a subadvisory fee of 50% of the net investment management fee calculated on each fund’s average daily net assets.
[A discussion regarding the basis for the Board of Trustees approving the investment advisory and subadvisory agreements of the funds will be available in the funds’ semi-annual report covering the period April 1, 2017 through September 30, 2017.]
The funds and the Adviser have received an exemptive order from the SEC that permits the Adviser, subject to certain conditions and without the approval of shareholders to: (a) select both unaffiliated subadvisers and certain wholly-owned affiliated subadvisers to manage all or a portion of the assets of a fund, and enter into subadvisory agreements with such subadvisers, and (b) materially amend subadvisory agreements with such subadvisers. In such circumstances, shareholders would receive notice of such action.
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Portfolio Management
Seix utilizes a team management approach for the funds for which it acts as subadviser. Seix is organized into teams of portfolio managers and credit analysts along sectors and broad investment categories, including government securities, corporate bonds, securitized assets, high yield bonds, high yield loans, emerging market debt, non-U.S. securities and global currencies. The senior portfolio managers are responsible for security selection, portfolio structure and rebalancing, compliance with stated investment objectives, and cash flow monitoring.
The following individuals are primarily responsible for the day-to-day management of the funds’ portfolios:
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Seth Antiles. Mr. Antiles joined Seix in 2005 and serves as Senior Portfolio Manager and Managing Director. He specializes in global macro strategies. Mr. Antiles is focused on research and oversight for all emerging market and non-dollar investments and is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has worked in investment management since 1994.
Christopher Carter. Mr. Carter joined Seix in 2003 and serves as a Portfolio Manager and Managing Director at Seix. He has worked in investment management since 1991.
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Carlos Catoya. Mr. Catoya joined Seix in 2001 and serves as Portfolio Manager for Credit and Managing Director. He has worked in investment management since 1994.
James FitzPatrick. Mr. FitzPatrick joined Seix in 1997 and serves as Portfolio Manager, Managing Director and Head of Leveraged Finance Trading. He has worked in investment management since 1996.
Vince Flanagan. Mr. Flanagan joined Seix in 2006 and serves as a Portfolio Manager and Senior High Yield Research Analyst focusing on Media and Technology. He has worked in investment management since 1997.
George Goudelias. Mr. Goudelias is a Senior Portfolio Manager, Head of Leveraged Finance and a Senior High Yield Research Analyst covering the Telecommunications sector for Seix. He is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has extensive experience covering the telecommunications industry. He has worked in investment management since 1987.
James F. Keegan. Mr. Keegan joined Seix in 2008 and serves as Chief Investment Officer and Chairman of Seix. He has oversight responsibilities for the Seix investment teams and specific portfolio management responsibilities within the Investment Grade team. Mr. Keegan leads the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He also serves on the Board of Directors of RidgeWorth Holdings LLC and is a member of the Management Member Working Group. He has worked in investment management since 1982.
Michael Kirkpatrick. Mr. Kirkpatrick joined Seix in 2002 and serves as Senior Portfolio Manager, Managing Director and Senior High Yield Research Analyst primarily covering the Gaming and Finance sectors. He is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has worked in investment management since 1991.
Michael Rieger. Mr. Rieger joined Seix in 2007 and serves as Senior Portfolio Manager and Managing Director. He focuses on the securitized sector and is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has worked in investment management since 1986.
Ronald Schwartz. Mr. Schwartz joined Seix Investment Advisors’ predecessor firm in 1988 and currently serves as Senior Portfolio Manager and Managing Director and leads the Investment Grade Tax-Exempt group at Seix. He is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has worked in investment management since 1982.
Dusty Self. Ms. Self is a Portfolio Manager and Managing Director at Seix and provides analysis for all the Investment Grade Tax-Exempt Bond Funds. Ms. Self began her career as a portfolio specialist and then as a performance analyst at Seix Investment Advisors’ predecessor firm. She has worked in investment management since 1992.
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Perry Troisi. Mr. Troisi joined Seix in 1999 and serves as Senior Portfolio Manager and Managing Director. He is responsible for the government, government-related, and securitized (residential mortgage-backed security/commercial mortgage-backed security/asset-backed security) asset classes. He is a member of the Seix Investment Policy Group, which determines firm-wide asset allocation policy. He has worked in investment management since 1986.
Jonathan Yozzo. Mr. Yozzo joined Seix in 2000 and serves as Portfolio Manager for Credit and Managing Director. He focuses on investment grade credit. He has worked in investment management since 1991.
Please refer to the SAI for additional information about the funds' portfolio managers, including the structure of and method of computing compensation, other accounts they manage and their ownership of shares of the funds.
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Risks Associated with Additional Investment Techniques and Fund Operations
In addition to the Principal Investment Strategies and Risks Related to Principal Investment Strategies, each of the funds listed in the chart below may engage in additional investment techniques that present additional risks to a fund as described below. Those additional investment techniques in which a fund is expected to engage as of the date of this prospectus are indicated in the chart below, although other techniques may be utilized from time to time. The information below the chart describes the additional investment techniques and their risks. Many of the additional investment techniques that a fund may use, as well as other investment techniques that are relied upon to a lesser degree, are more fully described in the SAI.
| Risks |
Virtus
Seix Core Bond Fund |
Virtus Seix
Corporate Bond Fund |
Virtus
Seix Total Return Bond Fund |
Virtus Seix
U.S. Mortgage Fund |
Virtus
Seix Limited Duration Fund |
Virtus
Seix Short- Term Bond Fund |
Virtus Seix
U.S. Government Securities Ultra-Short Bond Fund |
Virtus
Ultra- Short Bond Fund |
Virtus
Seix Floating Rate High Income Fund |
| Convertible Securities | X | X | X | X | |||||
| Cybersecurity | X | X | X | X | X | X | X | X | X |
| Equity Securities | X | X | X | X | |||||
| High-Yield/High-Risk Fixed Income Securities (Junk Bonds) | X | X | |||||||
| Investment Grade Securities | X | ||||||||
| Money Market Instruments | X | X | X | ||||||
| Mortgage-Backed and Asset-Backed Securities | X | ||||||||
| Municipal Securities | X | ||||||||
| Mutual Fund Investing | X | X | X | X | X | X | X | X | X |
| Operational | X | X | X | X | X | X | X | X | X |
| Repurchases Agreements | X | X | |||||||
| U.S. and Foreign Government Obligations | X | ||||||||
| Variable Rate, Floating Rate and Variable Amount Securities | X | X | X | X |
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| Risks |
Virtus
Seix High Income Fund |
Virtus
Seix High Yield Fund |
Virtus Seix
Georgia Tax- Exempt Bond Fund |
Virtus Seix
High Grade Municipal Bond Fund |
Virtus Seix
Investment Grade Tax- Exempt Bond Fund |
Virtus
Seix North Carolina Tax- Exempt Bond Fund |
Virtus Seix
Short- Term Municipal Bond Fund |
Virtus Seix
Virginia Intermediate Municipal Bond Fund |
| Convertible Securities | X | |||||||
| Cybersecurity | X | X | X | X | X | X | X | X |
| Equity Securities | X | |||||||
| High-Yield/High-Risk Fixed Income Securities (Junk Bonds) | X | X | X | X | X | X | ||
| Investment Grade Securities | X | |||||||
| Money Market Instruments | X | |||||||
| Mutual Fund Investing | X | X | X | X | X | X | X | X |
| Operational | X | X | X | X | X | X | X | X |
| Short-Term Investments | X | X | ||||||
| U.S. and Foreign Government Obligations | X | X | ||||||
| Variable Rate, Floating Rate and Variable Amount Securities | X | X |
In order to determine which investment techniques apply to a fund, please refer to the table above.
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Convertible Securities
Convertible securities are bonds, debentures, notes, preferred stock, rights, warrants or other securities that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula. A convertible security generally entitles the holder to receive interest paid or accrued on debt securities or the dividend paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. If a convertible security is called for redemption, the respective fund may have to redeem the security, convert it into common stock or sell it to a third party at a price and time that is not beneficial for the fund. The value of convertible securities tends to decline as interest rates rise and, because of the conversion feature, tends to vary with fluctuations in the market value of the underlying securities. Securities convertible into common stocks may have higher yields than common stocks but lower yields than comparable nonconvertible securities.
Cybersecurity
With the increased use of technologies such as the Internet to conduct business, the funds have become potentially more susceptible to operational and information security risks through breaches in cybersecurity. In general, a breach in cybersecurity can result from either a deliberate attack or an unintentional event. Cybersecurity breaches may involve, among other things, infection by computer viruses or other malicious software code or unauthorized access to the digital information systems, networks or devices of the funds or their service providers (including, but not limited to, the funds’ investment adviser, transfer agent, custodian, administrators and other financial intermediaries) through “hacking” or other means, in each case for the purpose of misappropriating assets or sensitive information (including, for example, personal shareholder information), corrupting data or causing operational disruption or failures in the physical infrastructure or operating systems that support the funds. Any such cybersecurity breaches or losses of service may cause the funds to lose proprietary information, suffer data corruption or lose operational capacity, which, in turn, could cause the funds to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss. While the funds and their service providers have established business continuity plans and risk management systems designed to prevent or reduce the impact of cybersecurity attacks, there are inherent limitations in such plans and systems due in part to the ever-changing nature of technology and cybersecurity attack tactics, and there is a possibility that certain risks have not been adequately identified or prepared for. Cybersecurity risks may also impact issuers of securities in which the funds invest, which may cause the funds’ investments in such issuers to lose value.
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Equity Securities
Generally, prices of equity securities are more volatile than those of fixed income securities. The prices of equity securities will rise and fall in response to a number of different factors. In particular, equity securities will respond to events that affect entire financial markets or industries (such as changes in inflation or consumer demand) and to events that affect particular issuers (such as news about the success or failure of a new product). Equity securities also are subject to “stock market risk,” meaning that stock prices in general may decline over short or extended periods of time. When the value of the stocks held by the fund goes down, the value of the fund’s shares will be affected.
High-Yield/High-Risk Fixed Income Securities (Junk Bonds)
Securities rated “BB” or below by S&P or Fitch, or “Ba” or below by Moody’s, may be known as “high-yield” securities and commonly referred to as “junk bonds.” The highest of the ratings among S&P, Fitch and Moody's is used to determine the security's classification. Such securities entail greater price volatility and credit and interest rate risk than investment grade securities. Analysis of the creditworthiness of high-yield/high-risk issuers is more complex than for higher-rated securities, making it more difficult for a fund's subadviser to accurately predict risk. There is a greater risk with high-yield/high-risk fixed income securities that an issuer will not be able to make principal and interest payments when due. If the fund pursues missed payments, there is a risk that fund expenses could increase. In addition, lower-rated securities may not trade as often and may be less liquid than higher-rated securities, especially during periods of economic uncertainty or change. As a result of all of these factors, these bonds are generally considered to be speculative.
Investment Grade Securities
A fund may invest in all types of long-term or short-term investment grade debt obligations of U.S. issuers. In addition to the types of securities mentioned in connection with the fund’s principal investment strategies, the fund may also invest in other bonds, debentures, notes, municipal bonds, equipment lease certificates, equipment trust certificates, conditional sales contracts and commercial paper. Debt securities with lower credit ratings have a higher risk of default on payment of principal and interest, and securities with longer maturities are subject to greater price fluctuations in response to changes in interest rates. If interest rates rise, the value of debt securities generally will fall.
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Money Market Instruments
To meet margin requirements, redemptions or for investment purposes, a fund may hold money market instruments, including full faith and credit obligations of the United States, high quality short-term notes and commercial paper.
Mortgage-Backed and Asset-Backed Securities
Mortgage-backed securities represent interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. Asset-backed securities represent interests in pools of underlying assets such as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card agreements. These two types of securities share many of the same risks.
The impairment of the value of collateral or other assets underlying a mortgage-backed or asset-backed security, such as that resulting from non-payment of loans, may result in a reduction in the value of such security and losses to a fund.
Early payoffs in the loans underlying such securities may result in a fund receiving less income than originally anticipated. The variability in prepayments will tend to limit price gains when interest rates drop and exaggerate price declines when interest rates rise. In the event of high prepayments, a fund may be required to invest proceeds at lower interest rates, causing the fund to earn less than if the prepayments had not occurred. Conversely, rising interest rates may cause prepayments to occur at a slower than expected rate, which may effectively change a security that was considered short- or intermediate-term into a long-term security. Long-term securities tend to fluctuate in value more widely in response to changes in interest rates than shorter-term securities.
Municipal Securities
The amount of public information available about municipal bonds is generally less than that for corporate equities or bonds, and the investment performance of a fund may be more dependent on the analytical abilities of the investment adviser than would be the case for a fund that does not invest in municipal bonds. The secondary market for municipal bonds also tends to be less well-developed and less liquid than many other securities markets, which may adversely affect the fund’s ability to sell its bonds at attractive prices. In addition, municipal obligations can experience downturns in trading activity, and the supply of municipal obligations may exceed the demand in the market. During such periods, the spread can widen between the price at which an obligation can be purchased and the price at which it can be sold.
Less liquid obligations can become more difficult to value and be subject to erratic price movements. Economic and other events (whether real or perceived) can reduce the demand for certain investments or for investments generally, which may reduce market prices and cause the value of the fund’s shares to fall. The frequency and magnitude of such changes cannot be predicted. A fund may invest in municipal obligations that do not appear to be related, but in fact depend on the financial rating or support of a single government unit, in which case, events that affect one of the obligations will also affect the others and will impact the fund’s portfolio to a greater degree than if the fund’s investments were not so related. The increased presence of non-traditional participants in the municipal markets may lead to greater volatility in the markets.
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Mutual Fund Investing
Through its investments in other mutual funds, a fund is exposed not only to the risks of the underlying funds’ investments but also to certain additional risks. Assets invested in other mutual funds incur a layering of expenses, including operating costs, advisory fees and administrative fees that you, as a shareholder in the fund, indirectly bear. Such fees and expenses may exceed the fees and expenses the fund would have incurred if it invested in the underlying fund’s assets directly. To the extent that the expense ratio of an underlying fund changes, the weighted average operating expenses borne by the fund may increase or decrease. An underlying fund may change its investment objective or policies without the approval of the fund, and the fund might be forced to withdraw its investment from the underlying fund at a time that is unfavorable to the fund. If a fund invests in closed-end funds, it may incur added expenses such as additional management fees and trading costs and additional risks associated with trading at a discount to NAV and use of leverage.
Operational
An investment in a fund, like any mutual fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers. The occurrence of any of these failures, errors or breaches could result in a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a material adverse effect on a fund. While the funds seek to minimize such events through controls and oversight, there may still be failures that could cause losses to a fund.
Repurchase Agreements
A fund may invest in repurchase agreements with commercial banks, brokers and dealers considered by the fund’s subadviser to be creditworthy. Such agreements subject the fund to the risk of default or insolvency of the counterparty.
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Short-Term Investments
Short-term investments include money market instruments, repurchase agreements, certificates of deposit and bankers’ acceptances and other short-term instruments that are not U.S. Government securities. These securities generally present less risk than many other investments, but they are generally subject to credit risk and may be subject to other risks as well.
U.S. and Foreign Government Obligations
Obligations issued or guaranteed by the U.S. Government, its agencies, authorities and instrumentalities and backed by the full faith and credit of the United States only guarantee principal and interest will be timely paid to holders of the securities. The entities do not guarantee that the value of fund shares will increase, and in fact, the market values of such obligations may fluctuate. In addition, not all U.S. Government securities are backed by the full faith and credit of the United States; some are the obligation solely of the entity through which they are issued. There is no guarantee that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law. Foreign obligations may not be backed by the government of the issuing country, and are subject to foreign investing risks.
Variable Rate, Floating Rate and Variable Amount Securities
Variable rate, floating rate, or variable amount securities are generally short-term, unsecured, fluctuating, interest bearing notes of private issuers. The absence of an active secondary market with respect to certain such instruments could make it difficult for the fund to dispose of the instrument if the issuer defaulted on its payment obligation or during periods that a fund is not entitled to exercise its demand rights, and the fund could, for these or other reasons, suffer a loss with respect to such instruments.
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How is the Share Price determined?
Each fund calculates a share price for each class of its shares. The share price (net asset value or “NAV”) for each class is based on the net assets of the fund and the number of outstanding shares of that class. In general, each fund calculates a share price for each class by:
| · | adding the values of all securities and other assets of the fund; |
| · | subtracting liabilities; and |
| · | dividing the result by the total number of outstanding shares of that class. |
Assets: Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded, or, if no closing price is available, at the last bid price. Shares of other investment companies are valued at such companies’ NAVs. Debt securities (other than short-term investments) are valued on the basis of broker quotations or valuations provided by a pricing service, which in determining value utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Other assets, such as accrued interest, accrued dividends and cash are also included in determining a fund’s NAV. As required, some securities and assets are valued at fair value as determined in good faith by, or under the direction of, the Board of Trustees.
Liabilities: Accrued liabilities for class-specific expenses (if any), distribution fees, service fees and other liabilities are deducted from the assets of each class. Accrued expenses and liabilities that are not class-specific (such as management fees) are allocated to each class in proportion to each class’s net assets except where an alternative allocation can be more appropriately made.
Net Asset Value (NAV): The liabilities allocated to a class are deducted from the proportionate interest of such class in the assets of the applicable fund. The resulting amount for each class is then divided by the number of shares outstanding of that class to produce each class’s NAV per share.
The NAV per share of each class of each fund is determined as of the close of regular trading (normally 4:00 PM Eastern time) on days when the New York Stock Exchange (“NYSE”) is open for trading. A fund will not calculate its NAV per share class on days when the NYSE is closed for trading. If a fund (or underlying fund, as applicable) holds securities that are traded on foreign exchanges that trade on weekends or other holidays when the funds do not price their shares, the NAV of the fund’s shares may change on days when shareholders will not be able to purchase or redeem the fund’s shares.
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How are securities fair valued?
If market quotations are not readily available or available prices are not reliable, the funds (or underlying fund, as applicable) determine a “fair value” for an investment according to policies and procedures approved by the Board of Trustees. The types of assets for which such pricing might be required include: (i) securities whose trading has been suspended; (ii) securities where the trading market is unusually thin or trades have been infrequent; (iii) debt securities that have recently gone into default and for which there is no current market quotation; (iv) a security whose market price is not available from an independent pricing source and for which otherwise reliable quotes are not available; (v) securities of an issuer that has entered into a restructuring; (vi) a security whose price as provided by any pricing source does not, in the opinion of the adviser/subadviser, reflect the security’s market value; (vii) foreign securities subject to trading collars for which no or limited trading takes place; (viii) securities where the market quotations are not readily available as a result of “significant” events; and (ix) securities whose principal exchange or trading market is closed for an entire business day on which a fund needs to determine its NAV. This list is not inclusive of all situations that may require a security to be fair valued, nor is it intended to be conclusive in determining whether a specific event requires fair valuation.
The value of any portfolio security held by a fund for which market quotations are not readily available shall be determined in good faith and in a manner that assesses the security’s “fair value” on the valuation date (i.e., the amount that the fund might reasonably expect to receive for the security upon its current sale), based on a consideration of all available facts and all available information, including, but not limited to, the following: (i) the fundamental analytical data relating to the investment; (ii) the value of other relevant financial instruments, including derivative securities, traded on other markets or among dealers; (iii) an evaluation of the forces which influence the market in which these securities are purchased and sold ( e.g. , the existence of merger proposals or tender offers that might affect the value of the security); (iv) the type of the security; (v) the size of the holding; (vi) the initial cost of the security; (vii) trading volumes on markets, exchanges or among broker-dealers; (viii) price quotes from dealers and/or pricing services; (ix) values of baskets of securities traded on other markets, exchanges, or among dealers; (x) changes in interest rates; (xi) information obtained from the issuer, analysts, other financial institutions and/or the appropriate stock exchange (for exchange traded securities); (xii) an analysis of the company’s financial statements; (xiii) government (domestic or foreign) actions or pronouncements; (xiv) recent news about the security or issuer; (xv) whether two or more dealers with whom the adviser/subadviser regularly effects trades are willing to purchase or sell the security at comparable prices; and (xvi) other news events or relevant matters.
Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets close (where the security is principally traded) and the time that the fund calculates its NAV (generally, the close of regular trading on the NYSE) that may impact the value of securities traded in these foreign markets. In such cases, information from an external vendor may be utilized to adjust closing market prices of certain
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foreign common stocks to reflect their fair value. Because the frequency of significant events is not predictable, fair valuation of certain foreign common stocks may occur on a frequent basis.
The value of a security, as determined using the funds’ fair valuation procedures, may not reflect such security’s market value.
At what price are shares purchased?
All investments received by the funds’ authorized agents in good order prior to the close of regular trading on the NYSE (normally 4:00 PM Eastern time) will be executed based on that day’s NAV; investments received by the funds’ authorized agent in good order after the close of regular trading on the NYSE will be executed based on the next business day’s NAV. Shares credited to your account from the reinvestment of a fund’s distributions will be in full and fractional shares that are purchased at the closing NAV on the next business day on which the fund’s NAV is calculated following the dividend record date.
What are the classes and how do they differ?
Each fund offers multiple classes of shares. Each class of shares has different sales and distribution charges. (See “Fund Fees and Expenses” in each fund’s “Fund Summary,” previously in this prospectus.) For certain classes of shares, the funds have adopted distribution and service plans allowed under Rule 12b-1 of the Investment Company Act of 1940, as amended, that authorize the funds to pay distribution and service fees ("Rule 12b-1 Fees") for the sale of their shares and for services provided to shareholders.
The Rule 12b-1 Fees paid by each class of the fund currently are as follows:
| Fund | Class A | Class C | Class R | Class I | Class IS | Class T |
| Virtus Seix Core Bond Fund | 0.25% | N/A | 0.50% | None | None | 0.25% |
| Virtus Seix Corporate Bond Fund | 0.25% | 1.00% | N/A | None | N/A | 0.25% |
| Virtus Seix Total Return Bond Fund | 0.25% | N/A | 0.50% | None | None | 0.25% |
| Virtus Seix U.S. Mortgage Fund | 0.20% | 1.00% | N/A | None | N/A | 0.25% |
| Virtus Seix Limited Duration Fund | N/A | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix Short-Term Bond Fund | 0.20% | 1.00% | N/A | None | N/A | 0.25% |
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | N/A | N/A | N/A | None | None | 0.25% |
| Virtus Seix Ultra-Short Bond Fund | N/A | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix Floating Rate High Income Fund | 0.25% | 1.00% | N/A | None | None | 0.25% |
| Virtus Seix High Income Fund | 0.25% | N/A | 0.50% | None | None | 0.25% |
| Virtus Seix High Yield Fund | 0.25% | N/A | 0.50% | None | None | 0.25% |
| Virtus Seix Georgia Tax-Exempt Bond Fund | 0.15% | N/A | N/A | None | N/A | 0.25% |
| Virtus High Grade Municipal Bond Fund | 0.15% | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix Investment Grade Tax-Exempt Fund | 0.25% | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix North Carolina Tax-Exempt Bond Fund | 0.15% | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix Short-Term Municipal Bond Fund | 0.15% | N/A | N/A | None | N/A | 0.25% |
| Virtus Seix Virginia Intermediate Municipal Bond Fund | 0.15% | N/A | N/A | None | N/A | 0.25% |
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What arrangement is best for you?
The different classes of shares permit you to choose the method of purchasing shares that is most beneficial to you. In choosing a class of shares, consider the amount of your investment, the length of time you expect to hold the shares, whether you decide to receive distributions in cash or to reinvest them in additional shares, and any other personal circumstances. Depending upon these considerations, the accumulated distribution and service fees and contingent deferred sales charges of one class of shares may be more or less than the initial sales charge and accumulated distribution and service fees of another class of shares bought at the same time. Because distribution and service fees are paid out of a fund’s assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
Your financial representative should recommend only those arrangements that are suitable for you based on known information. In certain instances, you may be entitled to a reduction or waiver of sales charges. For instance, you may be entitled to a sales charge discount on Class A Shares and Class T Shares if you purchase more than certain breakpoints.
To determine your eligibility for a sales charge discount on Class A Shares, you may aggregate all of your accounts (including joint accounts, retirement accounts such as individual retirement accounts (“IRAs”), non-IRAs, etc.) and those of your spouse, domestic partner, children and minor grandchildren.
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares directly from the fund or through a financial intermediary. Different intermediaries may impose different sales charges (including partial reduction in or waivers of sales charges) other than those listed in this section. Such intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” Appendix A is incorporated herein by reference (and is legally part of this prospectus).
Your financial representative may request that you provide an account statement or other holdings information to determine your eligibility for a breakpoint and/or waiver and to make certain all involved parties have the necessary data. In all instances, it is the purchaser’s responsibility to notify the fund or the purchaser’s financial representative at the time of purchase of any relationship or other facts qualifying the purchaser for sales charge waivers or discounts. For waivers and discounts not available through a particular intermediary, in order to receive these waivers or discounts shareholders will have to purchase fund shares through another intermediary offering such waivers or discounts or directly from the fund if the fund offers such waivers or discounts.
Additional information about the classes of shares offered, sales charges, breakpoints and discounts follows in this section and also may be found in the SAI in the section entitled “How to Buy Shares.” Intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” This information is available free of charge, and in a clear and prominent format, at the [Individual Investors] section of virtus.com. Please be sure that you fully understand these choices before investing. If you or your financial representative requires additional assistance, you may also contact [Virtus Fund Services] by calling toll-free [800-243-1574].
Class A Shares (not offered by Virtus Seix Limited Duration Fund, Virtus Seix U.S. Government Securities Ultra-Short Bond Fund and Virtus Seix Ultra-Short Bond Fund). If you purchase Class A Shares, you will pay a sales charge at the time of purchase equal to the following: for Virtus Seix Floating Rate High Income Fund, Virtus Seix Short-Term Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix U.S. Mortgage Fund, 2.50% of the offering price (2.56% of the amount invested); for Virtus Seix Core Bond Fund, Virtus Seix Corporate Bond Fund, Virtus Seix Georgia Tax-Exempt Bond Fund, Virtus Seix High Grade Municipal Bond Fund, Virtus Seix High Income Fund, Virtus Seix High Yield Fund, Virtus Seix Investment Grade Tax-Exempt Bond Fund, Virtus Seix North Carolina Tax-Exempt Bond Fund, Virtus Seix Total Return Bond Fund and Virtus Seix Virginia Intermediate Municipal Bond Fund, 4.75% of the offering price (4.99% of the amount invested); and for the other funds, 5.75% of the offering price (6.10% of the amount invested). The sales charge may be reduced or waived under certain conditions. (See “Initial Sales Charge Alternative—Class A Shares” and
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“Class A Sales Charge Reductions and Waivers” below.) Generally, Class A Shares are not subject to any charges by the fund when redeemed; however, a contingent deferred sales charge (“CDSC”) may be imposed on certain redemptions within 18 months of a finder's fee being paid. The Distributor may pay broker-dealers a finder's fee for eligible Class A Share purchases in excess of $1 million. For all Virtus fixed income funds, the CDSC is 0.50%. The 18-month period begins on the last day of the month preceding the month in which the purchase was made, and shares not subject to a finder's fee will be deemed to be redeemed first. Class A Shares have lower distribution and service fees (0.15% for Virtus Seix Georgia Tax-Exempt Bond Fund, Virtus High Grade Municipal Bond Fund, Virtus Seix Investment Grade Tax-Exempt Bond Fund, Virtus Seix North Carolina Tax-Exempt Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix Virginia Intermediate Municipal Bond Fund; 0.20% for Virtus Seix Short-Term Bond Fund and Virtus Seix U.S. Mortgage Fund; and 0.25% for all other Virtus Mutual Funds) and generally pay higher dividends than Class C Shares and Class R Shares.
Class C Shares (Virtus Seix Corporate Bond Fund, Virtus Seix U.S. Mortgage Fund, Virtus Seix Short-Term Bond Fund and Virtus Seix Floating Rate High Income Fund only). If you purchase Class C Shares, you will not pay a sales charge at the time of purchase. If you sell your Class C Shares within the first year after they are purchased, you will pay a deferred sales charge of 1%. (See “Deferred Sales Charge Alternative—Class C Shares” below.) Class C Shares have higher distribution and service fees (1.00%) and pay lower dividends than Class A Shares and Class R Shares. Class C Shares do not convert to any other class of shares of the funds, so the higher distribution and service fees paid by Class C Shares continue for the life of the account.
Class R Shares (Virtus Seix Core Bond Fund, Virtus Seix Total Return Bond Fund, Virtus Seix High Income Fund and Virtus Seix High Yield Fund only). Class R Shares are designed to be sold only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and other retirement plan platforms, including brokers, dealers, banks, insurance companies, retirement plan record-keepers and others. Class R Shares require an agreement with the funds prior to investment. Class R Shares may also be purchased by shareholders of the Virtus Seix Total Return Bond Fund (formerly, the RidgeWorth Seix Total Return Bond Fund) who owned Class C Shares in the Fund on February 12, 2009 and by shareholders of the Virtus Seix Core Bond Fund (formerly, the RidgeWorth Seix Core Bond Fund), the Virtus Seix High Income Fund (formerly, the RidgeWorth Seix High Income Fund), and the Virtus Seix High Yield Fund (formerly, the RidgeWorth Seix High Yield Fund) who owned Class C Shares in the applicable Fund on July 31, 2009. If you are eligible to purchase and do purchase Class R Shares, you will pay no sales charge at any time. Class R Shares have higher distribution and service fees (0.50%) and pay lower dividends than Class A Shares. Class R Shares do not convert to any other class of shares of the funds, so the higher distribution and service fees paid by Class R Shares continue for the life of the account.
Class I Shares. Class I Shares are offered primarily to clients of financial institutions and intermediaries that (i) charge such clients an ongoing fee for advisory, investment, consulting or similar services; or (ii) have entered into an agreement with the funds’ distributor to offer Class I Shares through a no-load network or platform. Such clients may include pension and profit sharing plans, other employee benefit trusts, endowments, foundations and corporations. Class I
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Shares are also offered to private and institutional clients of, or referred by, the adviser, a subadviser or their affiliates, and to Trustees of the funds and trustees/directors of affiliated open- and closed-end funds, and directors, officers and employees of Virtus and its affiliates. If you are eligible to purchase and do purchase Class I Shares, you will pay no sales charge at any time. There are no distribution and service fees applicable to Class I Shares.
Class IS Shares. Class IS Shares are offered to the following investors (provided that they do not require or receive any compensation, administrative payments, sub-transfer agency payments or service payments with respect to Class IS Shares) without a minimum initial investment: (i) qualified retirement plans, including, but not limited to, 401(k) plans, 457 plans, employer sponsored 403(b) plans, defined benefit plans and other accounts or plans whereby Class IS Shares are held on the books of a fund through plan level or omnibus accounts; (ii) banks and trust companies; (iii) insurance companies; (iv) registered investment companies; and (v) non-qualified deferred compensation plans. Other institutional investors may be permitted to purchase Class IS Shares subject to management’s determination of eligibility and may be subject to a $2,500,000 minimum initial investment requirement. The minimum initial investment amount may be waived subject to management’s discretion, and/or purchased by or through: (i) certain registered open-end investment companies whose shares are distributed by the Distributor; (ii) accounts held by, or for the benefit of, an affiliate of a fund; or (iii) investments made in connection with certain reorganizations as approved by a fund’s investment adviser. If you are eligible to purchase and do purchase Class IS Shares, you will pay no sales charge at any time. There are no distribution and service fees applicable to Class IS Shares.
Class T Shares. You may qualify for sales charge discounts in Class T Shares if you invest at least $250,000 in the fund. Information about these and other discounts is available: (i) from your financial advisor or other financial intermediary; (ii) under “Sales Charges” on page __ of the fund’s statutory prospectus; (iii) with respect to purchase of shares through specific intermediaries, in Appendix A to the fund’s statutory prospectus, entitled “Intermediary Sales Charge Discounts and Waivers;” and (iv) under “Alternative Purchase Arrangements” on page __ of the fund’s statement of additional information.
Initial Sales Charge Alternative—Class A Shares
The public offering price of Class A Shares is the NAV plus a sales charge that varies depending on the size of your purchase. (See “Class A Shares—Reduced Initial Sales Charges” in the SAI.) Shares purchased based on the automatic reinvestment of income dividends or capital gain distributions are not subject to any sales charges. The sales charge is divided between your investment dealer and the fund's underwriter, VP Distributors, LLC (“VP Distributors” or the “Distributor”).
Sales Charge you may pay to purchase Class A Shares
Virtus Seix Floating Rate High Income Fund, Virtus Seix Short-Term Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix U.S. Mortgage Fund
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All Other Funds
| Sales Charge as a percentage of | ||
| Amount of Transaction at Offering Price | Offering Price | Net Amount Invested |
| Under $50,000 | 4.75% | 4.99% |
| $50,000 but under $100,000 | 4.50 | 4.71 |
| $100,000 but under $250,000 | 3.50 | 3.63 |
| $250,000 but under $500,000 | 2.50 | 2.56 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 |
| $1,000,000 or more | None | None |
Class A Sales Charge Reductions and Waivers
Investors may qualify for reduced or no initial (front-end) sales charges, as shown in the table above, through utilization of Combination Purchase Privilege, Letter of Intent, Right of Accumulation, Gifting of Shares, Purchase by Associations or the Account Reinstatement Privilege. These programs are summarized below and are described in greater detail in the SAI. These reductions and waivers do not apply to any CDSC that may be applied to certain Class A Share redemptions.
Combination Purchase Privilege. Your purchase of any class of shares of these funds or any other Virtus Mutual Fund, if made at the same time by the same person, will be added together with any existing Virtus Mutual Fund account values to determine whether the combined sum entitles you to an immediate reduction in sales charges. A “person” is defined in this and the following sections as either: (a) any individual, his or her spouse or domestic partner, children and minor grandchildren purchasing shares for his, her or their own account (including an IRA account), including his, her or their own sole proprietorship or trust where any of the above is a named beneficiary; (b) a trustee or other fiduciary purchasing for a single trust, estate or single fiduciary account (even though more than one beneficiary may exist); (c) multiple accounts (up to 200) under a qualified employee benefit plan or administered by a third party administrator; or (d) trust companies, bank trust departments, registered investment advisers, and similar entities placing orders or providing administrative services with respect to accounts over which they exercise discretionary investment authority and which are held in a fiduciary, agency, custodial or similar capacity, provided all shares are held of record in the name, or nominee name, of the entity placing the order.
Letter of Intent. If you sign a Letter of Intent, your purchase of any class of shares of these funds or any other Virtus Mutual Fund, if made by the same person within a 13-month period, will be added together to determine whether you are entitled to an immediate reduction in sales charges. Sales charges are reduced based on the overall amount you indicate that you will buy under the Letter of Intent. The Letter of Intent is a mutually non-binding arrangement between you and Virtus Mutual Funds. Shares worth 5% of the amount of each purchase will be held in escrow (while remaining registered in your name) to secure payment of the higher sales charges applicable to the shares actually purchased in the event the full intended amount is not purchased.
Right of Accumulation. The value of your account(s) in any class of shares of these funds or any other Virtus Mutual Fund if made over time by the same person, may be added together at the
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time of each purchase to determine whether the combined sum entitles you to a prospective reduction in sales charges. You must provide certain account information to Virtus Mutual Funds or their agents at the time of purchase to exercise this right.
Gifting of Shares. If you make a gift of shares of a Virtus Mutual Fund, upon your request you may combine purchases, if made at the same time, of any class of shares of these funds or any other Virtus Mutual Fund at the sales charge discount allowed for the combined purchase. The receiver of the gift may also be entitled to a prospective reduction in sales charges in accordance with the funds’ right of accumulation or other provisions. You or the receiver of the gift must provide certain account information to Virtus Mutual Funds or their agents at the time of purchase to exercise this right.
Purchase by Associations. Certain groups or associations may be treated as a “person” and qualify for reduced Class A Share sales charges. The group or association must: (1) have been in existence for at least six months; (2) have a legitimate purpose other than to purchase mutual fund shares at a reduced sales charge; (3) work through an investment dealer; and (4) not be a group whose sole reason for existing is to consist of members who are credit card holders of a particular company, policyholders of an insurance company, customers of a bank or a broker-dealer or clients of an investment adviser.
Account Reinstatement Privilege. Subject to the funds’ policies and procedures regarding market timing, for 180 days after you sell your Class A Shares on which you previously paid a sales charge, you may purchase Class A Shares of any Virtus Mutual Fund at NAV, with no sales charge, by reinvesting all or part of your proceeds, but not more.
Sales at Net Asset Value. In addition to the programs summarized above, the funds may sell their Class A Shares at NAV without an initial sales charge to certain types of accounts or account holders, including, but not limited to: trustees of the Virtus Mutual Funds; directors, officers, employees and sales representatives of the adviser, a subadviser or the Distributor and corporate affiliates of the adviser, a subadviser or the Distributor; private clients of an adviser or subadviser to any of the Virtus Mutual Funds; registered representatives and employees of dealers with which the Distributor has sales agreements; and certain qualified employee benefit plans, endowment funds or foundations. Please see the SAI for more information about qualifying for purchases of Class A Shares at NAV.
Contingent Deferred Sales Charge you may pay on Class A Shares
Investors buying Class A Shares on which a finder’s fee has been paid may incur a CDSC if they redeem their shares within 18 months of purchase. For Virtus fixed income funds, the CDSC is 0.50%. The 18-month period begins on the last day of the month preceding the month in which the purchase was made, and shares not subject to a finder’s fee will be deemed to be redeemed first. The CDSC will be multiplied by the then current market value or the initial cost of the shares being redeemed, whichever is less.
Class A and Class C Shares Sales Charge Reductions and Waivers
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares through a financial intermediary offering them. Different intermediaries may impose different sales charges (including partial reduction in or waivers of sales charges) other than those listed in this section, provided that they do not exceed the maximum sales charge listed. Such intermediary-specific sales charge variations are described in Appendix A to this prospectus, entitled “Intermediary Sales Charges Discounts and Waivers.” Appendix A is incorporated herein by reference (and is legally part of this prospectus).
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Deferred Sales Charge Alternative—Class C Shares
Class C Shares are purchased without an initial sales charge; however, shares sold within one year of purchase are subject to a CDSC of 1.00%. The sales charge will be multiplied by the then current market value or the initial cost of the shares being redeemed, whichever is less. No sales charge will be imposed on increases in NAV or on shares purchased through the reinvestment of income dividends or capital gain distributions. To minimize the sales charge, shares not subject to any charge will be redeemed first, followed by shares held the longest time. The date of purchase will be used to calculate the number of shares owned and time period held.
Deferred Sales Charge you may pay to sell Class C Shares
| Year | 1 | 2+ | |||||
| CDSC | 1% | 0% |
Class A and Class C Shares—Waiver of Deferred Sales Charges
The CDSC is waived on the redemption (sale) of Class A and Class C Shares under certain limited circumstances, such as a redemption
(a) occurring within one year of the death of a shareholder, beneficiary of a custodial account or grantor of a trust account
(b) within one year of disability of a shareholder
(c) as a mandatory distribution under certain qualified retirement plans
(d) by 401(k) plans meeting certain criteria
(e) based on the exercise of exchange privileges among Virtus Mutual Funds
(f) based on any direct rollover transfer of shares meeting certain criteria
(g) based on the systematic withdrawal program, subject to certain restrictions.
Please refer to the SAI (see “Waiver of Deferred Sales Charges”) for additional detail about each of these waiver provisions.
Compensation to Dealers
Class A Shares, Class C Shares, Class R Shares, Class I Shares and Class IS Shares Only
Dealers with whom the Distributor has entered into sales agreements receive a discount or commission on Class A Shares as described below.
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Virtus Seix Floating Rate High Income Fund, Virtus Seix Short-Term Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix U.S. Mortgage Fund
| Amount of Transaction at Offering Price |
Sales Charge as
a
Percentage of Offering Price |
Sales Charge as
a
Percentage of Amount Invested |
Dealer Discount
as
a Percentage of Offering Price |
| Under $50,000 | 2.50% | 2.56% | 2.25% |
| $50,000 but under $100,000 | 2.25 | 2.30 | 2.00 |
| $100,000 but under $250,000 | 2.00 | 2.04 | 1.75 |
| $250,000 but under $500,000 | 1.75 | 1.78 | 1.50 |
| $500,000 but under $1,000,000 | 1.50 | 1.52 | 1.25 |
| $1,000,000 or more | None | None | None (1) |
(1) While investments of more than $1,000,000 are not subject to a front-end sales charge, dealers may receive commissions ranging from 0.25% to 0.50% on such purchases. Merrill Lynch receives an additional 0.25% of the front-end sales charge of Class A Shares of certain funds. Dealer commissions on investments of over $1,000,000 are paid on a tiered basis as follows:
| Trade Amount | Payout to Dealer |
| $1,000,000 - $2,999,999 | 0.50% |
| $3,000,000 - $49,999,999 | 0.25% |
| $50,000,000 or more | 0.25% |
All Other Funds
| Amount of Transaction at Offering Price |
Sales Charge as
a
Percentage of Offering Price |
Sales Charge as
a
Percentage of Amount Invested |
Dealer Discount
as
a Percentage of Offering Price |
| Under $50,000 | 4.75% | 4.99% | 4.00% |
| $50,000 but under $100,000 | 4.50 | 4.71 | 3.75 |
| $100,000 but under $250,000 | 3.50 | 3.63 | 2.75 |
| $250,000 but under $500,000 | 2.50 | 2.56 | 2.00 |
| $500,000 but under $1,000,000 | 2.00 | 2.04 | 1.75 |
| $1,000,000 or more | None | None | None (1) |
(1) While investments of more than $1,000,000 are not subject to a front-end sales charge, dealers may receive commissions ranging from 0.25% to 0.50% on such purchases. Merrill Lynch receives an additional 0.25% of the front-end sales charge of Class A Shares of certain funds. Dealer commissions on investments of over $1,000,000 are paid on a tiered basis as follows:
| Trade Amount | Payout to Dealer |
| $1,000,000 - $2,999,999 | 0.50% |
| $3,000,000 - $49,999,999 | 0.25% |
| $50,000,000 or more | 0.25% |
With respect to Class C Shares, the Distributor intends to pay investment dealers a sales commission of 1% of the sale price of Class C Shares sold by such dealers. Your broker, dealer or financial advisor may also charge you additional commissions or fees for their services in selling shares to you provided they notify the Distributor of their intention to do so.
Dealers and other entities that enter into special arrangements with the Distributor or the funds’ transfer agent, Virtus Fund Services, LLC (the “Transfer Agent”), may receive compensation for the sale and promotion of shares of these funds. Such fees are in addition to the sales commissions referenced above and may be based upon the amount of sales of fund shares by a
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dealer; the provision of assistance in marketing of fund shares; access to sales personnel and information dissemination services; and other criteria as established by the Distributor. Depending on the nature of the services, these fees may be paid either from the funds through distribution fees, service fees or, in some cases, the Distributor may pay certain fees from its own profits and resources.
Dealers and other entities that enter into special arrangements with the Distributor or the funds’ transfer agent may receive compensation from or on behalf of the funds for providing certain recordkeeping and related services to the funds or their shareholders. These fees may also be referred to as shareholder accounting fees, administrative services fees, sub-transfer agent fees or networking fees. They are not for the sale, promotion or marketing of fund shares.
From its own profits and resources, the Distributor may, from time to time, make payments to qualified wholesalers, registered financial institutions and third party marketers for marketing support services and/or retention of assets. These payments are sometimes referred to as “revenue sharing.” Among others, the Distributor has agreed to make such payments for marketing support services to AXA Advisors, LLC. Additionally, for Virtus fixed income funds, the Distributor may pay broker-dealers a finder’s fee in an amount equal to 0.50% of eligible Class A Share purchases from $1,000,000 to $3,000,000 and 0.25% on amounts greater than $3,000,000. Purchases of Class A Shares by an account in the name of a qualified employee benefit plan are eligible for a finder’s fee only if such plan has at least 100 eligible employees. A CDSC may be imposed on certain redemptions of such Class A investments within 18 months of purchase. For all Virtus fixed income funds, the CDSC is 0.50%. For purposes of determining the applicability of the CDSC, the 18-month period begins on the last day of the month preceding the month in which the purchase was made. The Distributor will also pay broker-dealers a service fee of 0.25% beginning in the thirteenth month following purchase of Class A Shares on which a finder’s fee has been paid. VP Distributors reserves the right to discontinue or alter such fee payment plans at any time.
From its own resources or pursuant to the distribution and shareholder servicing plans, and subject to the dealers’ prior approval, the Distributor may provide additional compensation to registered representatives of dealers in the form of travel expenses, meals, and lodging associated with training and educational meetings sponsored by the Distributor. The Distributor may also provide gifts amounting in value to less than $100, and occasional meals or entertainment, to registered representatives of dealers. Any such travel expenses, meals, lodging, gifts or entertainment paid will not be preconditioned upon the registered representatives’ or dealers’ achievement of a sales target. The Distributor may, from time to time, reallow the entire portion of the sales charge on Class A Shares which it normally retains to individual selling dealers. However, such additional reallowance generally will be made only when the selling dealer commits to substantial marketing support such as internal wholesaling through dedicated personnel, internal communications and mass mailings.
The Distributor has also agreed to pay fees to certain distributors for preferred marketing opportunities. These arrangements may be viewed as creating a conflict of interest between these distributors and investors. Investors should make due inquiry of their selling agents to ensure that investors are receiving the requisite point of sale disclosures and suitable recommendations free of any influence by reason of these arrangements.
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The categories of payments the Distributor and/or the Transfer Agent may make to other parties are not mutually exclusive, and such parties may receive payments under more than one or all categories. These payments could be significant to a party receiving them, creating a conflict of interest for such party in making investment recommendations to investors. Investors should make due inquiry of any party recommending the funds for purchase to ensure that such investors are receiving the requisite point of sale disclosures and suitable recommendations free of any influence by reason of these arrangements.
A document containing information about sales charges, including breakpoint (volume) discounts, is available free of charge on the Internet at [ http://virtus.com ]. In the Individual Investors section, go to the tab “Investors Knowledge Base” and click on the link for Breakpoint (Volume) Discounts.
Class IS Shares Only
No compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from fund assets or the Distributor’s or an affiliate’s resources on sales of or investments in Class IS Shares. Class IS Shares do not carry sales commissions or pay Rule 12b-1 fees, or make payments to brokers or other entities to assist in, or in connection with, the sale of the fund’s shares.
Class T Shares Only
| Amount of Transaction at Offering Price |
Sales Charge as
Percentage of Offering Price |
Sales Charge as a Percentage of Amount Invested | Dealer Discount as a Percentage of Offering Price |
| Under $250,000 | 2.50% | 2.56% | 2.50% |
| $250,000 but under $500,000 | 2.00% | 2.04% | 2.00% |
| $500,000 but under $1,000,000 | 1.50% | 1.52% | 1.50% |
| $1,000,000 or more | 1.00% | 1.01% | 1.00% |
Opening an Account
Class A Shares, Class C Shares and Class I Shares Only
Your financial advisor can assist you with your initial purchase as well as all phases of your investment program. If you are opening an account by yourself, please follow the instructions outlined below.
The funds have established the following preferred methods of payment for fund shares:
| · | Checks drawn on an account in the name of the investor and made payable to Virtus Mutual Funds; |
| · | Checks drawn on an account in the name of the investor’s company or employer and made payable to Virtus Mutual Funds; or |
| · | Wire transfers or Automated Clearing House (“ACH”) transfers from an account in the name of the investor, or the investor’s company or employer. |
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Payment in other forms may be accepted at the discretion of the funds; however, the funds generally do not accept such other forms of payment as cash equivalents (such as traveler’s checks, cashier’s checks, money orders or bank drafts), starter checks, credit card convenience checks, or certain third party checks. Please specify the name(s) of the fund or funds in which you would like to invest on the check or transfer instructions.
To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. Accordingly, when you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may check the information you provide against publicly available databases, information obtained from consumer reporting agencies, other financial institutions or other sources. If, after reasonable effort, we cannot verify your identity, we reserve the right to close the account and redeem the shares at the NAV next calculated after the decision is made by us to close the account.
Step 1.
Your first choice will be the initial amount you intend to invest in each fund.
Minimum initial investments applicable to Class A and Class C Shares:
| · | $100 for individual retirement accounts (“IRAs”), accounts that use the systematic exchange privilege, or accounts that use the Systematic Purchase program. (See Investor Services and Other Information for additional details.) |
| · | There is no initial dollar requirement for defined contribution plans, asset-based fee programs, profit-sharing plans, or employee benefit plans. There is also no minimum for reinvesting dividends and capital gains into another account. |
| · | $2,500 for all other accounts. |
Minimum additional investments applicable to Class A and Class C Shares:
| · | $100 for any account. |
| · | There is no minimum additional investment requirement for defined contribution plans, asset-based fee programs, profit-sharing plans, or employee benefit plans. There is also no minimum additional investment requirement for reinvesting dividends and capital gains into another account. |
Minimum initial investments applicable to Class I Shares:
| · | $100,000 for any account for qualified investors. (Call Mutual Funds at 888-784-3863 for additional details.) |
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There is no minimum additional investment requirement applicable to Class I Shares.
Step 2.
Your second choice will be what class of shares to buy. Each share class, except Class I Shares, has different sales and distribution charges. Because all future investments in your account will be made in the share class you choose when you open your account, you should make your decision carefully. Your financial advisor can help you pick the share class that makes the most sense for your situation.
Step 3.
Your next choice will be how you want to receive any dividends and capital gain distributions. Your options are:
| · | Receive both dividends and capital gain distributions in additional shares; |
| · | Receive dividends in additional shares and capital gain distributions in cash; |
| · | Receive dividends in cash and capital gain distributions in additional shares; or |
| · | Receive both dividends and capital gain distributions in cash. |
No interest will be paid on uncashed distribution checks.
Class R Shares Only
If you are participating in an employer-sponsored defined contribution retirement plan or other retirement plan platform, your financial institution or financial intermediary will provide you with the information you need to open an account and buy Class R Shares.
Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to open an account and buy Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
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All Share Classes
The funds reserve the right to refuse any purchase order for any reason. The fund will notify the investor of any such rejection in accordance with industry and regulatory standards, which is generally within three business days.
Class A Shares, Class C Shares and Class I Shares Only
| To Open An Account | |
| Through a financial advisor | Contact your advisor. Some advisors may charge a fee and may set different minimum investments or limitations on buying shares. |
| Through the mail | Complete a new account application and send it with a check payable to the fund. Mail them to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. |
| Through express delivery | Complete a new account application and send it with a check payable to the fund. Send them to: Virtus Mutual Funds, [30 Dan Road, Canton, MA 02021]. |
| By Federal Funds wire | Call us at 888-784-3863. |
| By Systematic Purchase | Complete the appropriate section on the application and send it with your initial investment payable to the fund. Mail them to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. |
| By telephone exchange | Call us at 888-784-3863. |
Class R Shares Only
If you are participating in an employer-sponsored defined contribution retirement plan or other retirement plan platform, your financial institution or financial intermediary will provide you with the information you need to buy Class R Shares.
Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your financial institution or financial intermediary will provide you with the information you need to buy Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes
The price at which a purchase is effected is based on the NAV next determined after receipt of a purchase order in good order by the funds’ Transfer Agent or an authorized agent. A purchase
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order is generally in “good order” if an acceptable form of payment accompanies the purchase order and the order includes the appropriate application(s) and/or other form(s) and any supporting legal documentation required by the fund's Transfer Agent or an authorized agent, each in legible form.
Each fund reserves the right to refuse any order that may disrupt the efficient management of that fund.
Class A Shares, Class C Shares and Class I Shares Only
| To Sell Shares | |
| Through a financial advisor | Contact your advisor. Some advisors may charge a fee and may set different minimums on redemptions of accounts. |
| Through the mail | Send a letter of instruction to: Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. Be sure to include the registered owner’s name, fund and account number and number of shares or dollar value you wish to sell. |
| Through express delivery | Send a letter of instruction to: Virtus Mutual Funds, [30 Dan Road, Canton, MA 02021]. Be sure to include the registered owner’s name, fund and account number and number of shares or dollar value you wish to sell. |
| By telephone | For sales up to $50,000, requests can be made by calling 888-784-3863. |
| By telephone exchange | Call us at 888-784-3863. |
| By check (certain fixed income funds only) | If you selected the checkwriting feature, you may write checks for amounts of $250 or more. Checks may not be used to close accounts. Please call us at 888-784-3863 for a listing of funds offering this feature. |
Class R Shares Only
If you are participating in an employer-sponsored defined contribution retirement plan or other retirement plan platform, your financial institution or financial intermediary will provide you with the information you need to sell Class R Shares.
Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your
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financial institution or financial intermediary will provide you with the information you need to sell Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes You have the right to have the funds buy back shares at the NAV next determined after receipt of a redemption request in good order by the funds' Transfer Agent or an authorized agent. In the case of a Class C Share redemption, and certain Class A Share redemptions, you will be subject to the applicable contingent deferred sales charge, if any, for such shares. Subject to certain restrictions, shares may be redeemed by telephone or in writing. In addition, shares may be sold through securities dealers, brokers or agents who may charge customary commissions or fees for their services. The funds do not charge any redemption fees. Payment for shares redeemed is generally made within seven days; however, redemption proceeds will not be disbursed until each check used for purchases of shares has been cleared for payment by your bank, which may take up to 15 days after receipt of the check.
Things You Should Know When Selling Shares
You may realize a taxable gain or loss (for federal income tax purposes) if you redeem or exchange shares of the funds.
Class A Shares, Class C Shares and Class I Shares
Redemption requests will not be honored until all required documents, in proper form, have been received. Additional documentation will be required for redemptions by organizations, fiduciaries, or retirement plans, or if a redemption is requested by anyone but the shareholder(s) of record. To avoid delay in redemption or transfer, shareholders having questions about specific requirements should contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
Transfers between broker-dealer “street” accounts are governed by the accepting broker-dealer. Questions regarding this type of transfer should be directed to your financial advisor.
As stated in the applicable account applications, accounts associated with certain types of retirement plans and individual retirement accounts may incur fees payable to the Transfer Agent in the event of redeeming an account in full. Shareholders with questions about this should contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
Redemptions by Mail
➔ If you are selling shares held individually, jointly, or as custodian under the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act:
Send a clear letter of instruction if both of these apply:
| · | The proceeds do not exceed $50,000. |
| · | The proceeds are payable to the registered owner at the address on record. |
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Send a clear letter of instructions with a signature guarantee when any of these apply:
| · | You are selling more than $50,000 worth of shares. |
| · | The name or address on the account has changed within the last 30 days. |
| · | You want the proceeds to go to a different name or address than on the account. |
➔ If you are selling shares held in a corporate or fiduciary account, please contact the funds’ Transfer/Sub-transfer Agent at 888-784-3863.
The signature guarantee, if required, must be a STAMP 2000 Medallion guarantee made by an eligible guarantor institution as defined by the funds’ Transfer Agent in accordance with its signature guarantee procedures. Guarantees using previous technology medallions will not be accepted. As of the date of this prospectus, the Transfer Agent’s signature guarantee procedures generally permit guarantees by banks, broker-dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations.
Selling Shares by Telephone
The Transfer/Sub-transfer Agent will use reasonable procedures to confirm that telephone instructions are genuine. Address and bank account information are verified, redemption instructions are taped, and all redemptions are confirmed in writing.
The individual investor bears the risk from instructions given by an unauthorized third party that the Transfer/Sub-transfer Agent reasonably believed to be genuine.
The Transfer Agent may modify or terminate the telephone redemption privilege at any time with 60 days’ notice to shareholders, except for instances of disruptive trading or market timing; in such cases, the telephone redemption privilege may be suspended immediately, followed by written notice. (See “Disruptive Trading and Market Timing” in this prospectus.)
During times of drastic economic or market changes, telephone redemptions may be difficult to make or temporarily suspended; however, shareholders will be able to make redemptions through other methods described above.
Class R Shares Only
If you are participating in an employer-sponsored defined contribution retirement plan or other retirement plan platform, your financial institution or financial intermediary will provide you with the information you need to know when selling Class R Shares.
Class IS Shares Only
If you are investing through a qualified retirement plan, bank or trust company, insurance company, registered investment company or non-qualified deferred compensation plan, your
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financial institution or financial intermediary will provide you with the information you need to know when selling sell Class IS Shares.
Class T Shares Only
Class T Shares are available only through financial intermediaries. Your financial intermediary will provide you with the information you need to open an account and to buy or sell Class T Shares.
All Share Classes
Payment of Redemptions In Kind
Each fund reserves the right to pay large redemptions “in kind” (i.e., in securities owned by the fund) rather than in cash. Large redemptions are those that exceed $250,000 or 1% of the fund’s net assets, whichever is less, over any 90-day period. Additional documentation will be required for redemptions by organizations, fiduciaries, or retirement plans, or if a redemption is requested by anyone but the shareholder(s) of record. Investors who are paid redemption proceeds in kind will receive a pro rata share of the fund’s portfolio, which may include illiquid securities. Any securities received remain at market risk until sold. Brokerage commissions and capital gains may be incurred when converting securities received into cash. On any illiquid securities received, the investor will bear the risk of not being able to sell the securities at all.
Account Reinstatement Privilege
Subject to the funds’ policies and procedures regarding market timing, for 180 days after you sell your Class A Shares on which you have previously paid a sales charge, you may purchase Class A Shares of any Virtus Mutual Fund at NAV, with no sales charge, by reinvesting all or part of your proceeds, but not more. Send your written request to Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]. You can call the Transfer/Sub-transfer agent at 888-784-3863 for more information.
Please remember, a redemption and reinvestment are considered to be a sale and purchase for tax-reporting purposes.
Annual Fee on Small Accounts
To help offset the costs associated with maintaining small accounts, the funds reserve the right to assess an annual $25 small account fee on fund accounts with a balance below $2,500. The small account fee may be waived in certain circumstances, such as for accounts that have elected electronic delivery of statements/regulatory documents and accounts owned by shareholders having multiple accounts with a combined value of over $25,000. The small account fee does not apply to accounts held through a financial intermediary.
The small account fee will be collected through the automatic sale of shares in your account. We will send you written notice before we charge the $25 fee so that you may increase your account balance above the minimum, sign up for electronic delivery, consolidate your accounts or liquidate your account. You may take these actions at any time by contacting your investment professional or the Transfer Agent.
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Redemption of Small Accounts
Due to the high cost of maintaining small accounts, if your redemption activity causes your account balance to fall below $200, you may receive a notice requesting you to bring the balance up to $200 within 60 days. If you do not, the shares in the account will be sold at NAV, and a check will be mailed to the address of record. Any applicable sales charges will be deducted.
Distributions of Small Amounts
Distributions in amounts less than $10 will automatically be reinvested in additional shares of the fund.
Returned Mail
If any correspondence sent by a fund is returned by the postal or other delivery service as “undeliverable,” your dividends or any other distribution may be automatically reinvested in the fund.
Uncashed Checks
If your distribution check is not cashed within six months, the distribution may be reinvested in the fund at the current NAV. You will not receive any interest on uncashed distribution or redemption checks. This provision may not apply to certain retirement or qualified accounts.
Inactive Accounts
As required by the laws of certain states, if no activity occurs in an account within the time period specified by your state law, Virtus may be required to transfer the assets to your state under the state's abandoned property law.
Exchange Privileges
You should read the prospectus of the Virtus Mutual Fund(s) into which you want to make an exchange before deciding to make an exchange. You can obtain a prospectus from your financial advisor; by calling 888-784-3863; or on the Internet at virtus.com .
| · | You generally may exchange shares of one fund for the same class of shares of another fund ( e.g. , Class A Shares for Class A Shares). Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer agents. Class A Shares, Class C Shares and Class I shares of any fund in this prospectus are exchangeable for Class I Shares of Virtus Seix U.S. Government Securities Ultra-Short Bond Fund and Virtus Seix Ultra-Short Bond Fund. |
| · | Exchanges may be made by telephone (888-784-3863) or by mail (Virtus Mutual Funds, [P.O. Box 8053, Boston, MA 02266-8053]). |
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| · | The amount of the exchange must be equal to or greater than the minimum initial investment required, unless the minimum has been waived (as described in the SAI). |
| · | The exchange of shares of one fund for shares of a different fund is treated as a sale of the original fund's shares and any gain on the transaction may be subject to federal income tax. |
| · | In certain circumstances, a fund, the Distributor or the Transfer Agent may enter into an agreement with a financial intermediary to permit exchanges from one class of a fund into another class of the same fund, subject to certain conditions. Such exchanges will only be permitted if, among other things, the financial intermediary agrees to follow procedures established by the fund, Distributor or Transfer Agent, which generally will require that the exchanges be carried out (i) within accounts maintained and controlled by the intermediary, (ii) on behalf of all or a particular segment of beneficial owners holding shares of the affected fund within those accounts, and (iii) all at once or within a given time period, or as agreed upon in writing by the fund, the Distributor or the Transfer Agent and the financial intermediary. A shareholder’s ability to make this type of exchange may be limited by operational or other limitations of his or her financial intermediary or the fund. |
| · | If your financial intermediary exchanges Class A Shares for which you already paid an initial sales charge for Class T Shares, the shares subject to the exchange will not be subject to a sales charge. |
Disruptive Trading and Market Timing
These funds are not suitable for market timers, and market timers are discouraged from becoming investors. Your ability to make exchanges among Virtus Mutual Funds is subject to modification if we determine, in our sole opinion, that your exercise of the exchange privilege may disadvantage or potentially harm the rights or interests of other shareholders.
Frequent purchases, redemptions and exchanges, programmed exchanges, exchanges into and then out of a fund in a short period of time, and exchanges of large amounts at one time may be indicative of market timing and otherwise disruptive trading (“Disruptive Trading”) which can have risks and harmful effects for other shareholders. These risks and harmful effects include:
| · | dilution of the interests of long-term investors, if market timers or others exchange into a fund at prices that are below the true value or exchange out of a fund at prices that are higher than the true value; |
| · | an adverse effect on portfolio management, as determined by the adviser or subadviser in its sole discretion, such as causing a fund to maintain a higher level of cash than would otherwise be the case, or causing a fund to liquidate investments prematurely; and |
| · | reducing returns to long-term shareholders through increased brokerage and administrative expenses. |
Additionally, the nature of the portfolio holdings of certain funds (or the underlying funds as applicable) may expose those funds to investors who engage in the type of market timing trading that seeks to take advantage of possible delays between the change in the value of a mutual fund’s portfolio holdings and the reflection of the change in the NAV of the fund’s shares,
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sometimes referred to as “time-zone arbitrage.” Arbitrage market timers seek to exploit possible delays between the change in the value of a mutual fund’s portfolio holdings and the NAV of the fund’s shares in funds that hold significant investments in foreign securities because certain foreign markets close several hours ahead of the U.S. markets. If an arbitrageur is successful, the value of the fund’s shares may be diluted if redeeming shareholders receive proceeds (and buying shareholders receive shares) based upon NAVs which do not reflect appropriate fair value prices.
In order to attempt to protect our shareholders from the potential harmful effects of Disruptive Trading, the funds’ Board of Trustees has adopted market timing policies and procedures designed to discourage Disruptive Trading. The Board of Trustees has adopted these policies and procedures as a preventive measure to protect all shareholders from the potential effects of Disruptive Trading, while also abiding by any rights that shareholders may have to make exchanges and provide reasonable and convenient methods of making exchanges that do not have the potential to harm other shareholders.
Excessive trading activity is measured by the number of roundtrip transactions in an account. A roundtrip transaction is one where a shareholder buys and then sells, or sells and then buys, shares of any fund within 30 days. Shareholders of the funds are limited to one roundtrip transaction within any rolling 30-day period. Roundtrip transactions are counted at the shareholder level. In considering a shareholder’s trading activity, the funds may consider, among other factors, the shareholder’s trading history both directly and, if known, through financial intermediaries, in the funds, in other funds within the Virtus Mutual Fund complex, in non-Virtus funds or in accounts under common control or ownership. We do not include exchanges made pursuant to the dollar cost averaging or other similar programs when applying our market timing policies. Systematic withdrawal and/or contribution programs, mandatory retirement distributions, and transactions initiated by a plan sponsor also will not count towards the roundtrip limits. The funds may permit exchanges that management believes, in the exercise of their judgment, are not disruptive. The size of the fund and the size of the requested transaction may be considered when determining whether or not the transaction would be disruptive.
Shareholders holding shares for at least 30 days following investment will ordinarily be in compliance with the funds’ policies regarding excessive trading activity. The funds may, however, take action if activity is deemed disruptive even if shares are held longer than 30 days, such as a request for a transaction of an unusually large size. The size of the fund and the size of the requested transaction may be considered when determining whether or not the transaction would be disruptive.
Under our market timing policies, we may modify your exchange privileges for some or all of the funds by not accepting an exchange request from you or from any person, asset allocation service, and/or market timing service made on your behalf. We may also limit the amount that may be exchanged into or out of any fund at any one time, or may revoke your right to make Internet, telephone or facsimile exchanges. We may reinstate Internet, telephone and facsimile exchange privileges after they are revoked, but we will not reinstate these privileges if we have reason to believe that they might be used thereafter for Disruptive Trading.
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The funds currently do not charge exchange or redemption fees, or any other administrative charges on fund exchanges. The funds reserve the right to impose such fees and/or charges in the future.
Orders for the purchase of fund shares are subject to acceptance by the relevant fund. We reserve the right to reject, without prior notice, any exchange request into any fund if the purchase of shares in the corresponding fund is not accepted for any reason.
The funds do not have any arrangements with any person, organization or entity to permit frequent purchases and redemptions of fund shares.
We may, without prior notice, take whatever action we deem appropriate to comply with or take advantage of any state or federal regulatory requirement. The funds reserve the right to reject any purchase or exchange transaction at any time. If we reject a purchase or exchange for any reason, we will notify you of our decision in writing.
The funds cannot guarantee that their policies and procedures regarding market timing will be effective in detecting and deterring all Disruptive Trading.
Retirement Plans
Shares of the funds may be used as investments under the following retirement plans: traditional IRA, rollover IRA, SEP-IRA, SIMPLE IRA, Roth IRA, 401(k) plans, profit-sharing, money purchase plans, and certain 403(b) plans. For more information, call 800-243-4361.
Investor Services and Other Information
Systematic Purchase is a systematic investment plan that allows you to have a specified amount automatically deducted from your checking or savings account and then deposited into your mutual fund account. (Complete the “Systematic Purchase” section on the application and include a voided check.)
Systematic Exchange allows you to automatically move money from one Virtus Mutual Fund to another on a monthly, quarterly, semiannual or annual basis. Shares of one Virtus Mutual Fund will be exchanged for shares of the same class of another Virtus Mutual Fund at the interval you select. (Complete the “Systematic Exchange” section on the application.) Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer agents.
Telephone Exchange lets you exchange shares of one Virtus Mutual Fund for the same class of shares in another Virtus Mutual Fund, using our customer service telephone number (888-784-3863). (See the “Telephone Exchange” section on the application.) Exchange privileges may not be available for all Virtus Mutual Funds and may be rejected or suspended. Please note that the exchange privilege may be limited to exchanges among the funds that are series of Virtus Asset Trust and not be available for exchanges among the broader of Virtus Mutual Funds for so long as the funds that are series of Virtus Asset Trust and other Virtus funds maintain different Transfer/Sub-transfer agents.
Systematic Withdrawal allows you to periodically redeem a portion of your account on a predetermined monthly, quarterly, semiannual, or annual basis. Sufficient shares from your account will be redeemed at the closing NAV on the applicable payment date, with proceeds to
| 173 |
be mailed to you or sent through ACH to your bank (at your selection). For payments to be mailed, shares will be redeemed on the 15 th of the month so that the payment is made about the 20 th of the month. For ACH payments, you may select the day of the month for the payments to be made; if no date is specified, the payments will occur on the 15 th of the month. The minimum withdrawal is $25, and minimum account balance requirements continue to apply. Shareholders in the program must own Virtus Mutual Fund shares worth at least $5,000.
Disclosure of Fund Portfolio Holdings. A description of the funds' policies and procedures with respect to the disclosure of the funds' portfolio securities is available in the SAI.
The funds plan to make distributions from net investment income at intervals stated in the table below and to distribute net realized capital gains, if any, at least annually.
| Fund | Dividend Paid |
| Virtus Seix Core Bond Fund | Monthly |
| Virtus Seix Corporate Bond Fund | Monthly |
| Virtus Seix Total Return Bond Fund | Monthly |
| Virtus Seix U.S. Mortgage Fund | Monthly |
| Virtus Seix Limited Duration Fund | Monthly |
| Virtus Seix Short-Term Bond Fund | Monthly |
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | Monthly |
| Virtus Seix Ultra-Short Bond Fund | Monthly |
| Virtus Seix Floating Rate High Income Fund | Monthly |
| Virtus Seix High Income Fund | Monthly |
| Virtus Seix High Yield Fund | Monthly |
| Virtus Seix Georgia Tax-Exempt Bond Fund | Monthly |
| Virtus High Grade Municipal Bond Fund | Monthly |
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | Monthly |
| Virtus Seix North Carolina Tax-Exempt Bond Fund | Monthly |
| Virtus Seix Short-Term Municipal Bond Fund | Monthly |
| Virtus Seix Virginia Intermediate Municipal Bond Fund | Monthly |
Distributions of short-term capital gains (gains on securities held for a year or less) and net investment income are generally taxable to shareholders as ordinary income. Certain distributions of long-term capital gains and certain dividends are taxable at a lower rate than ordinary income. Long-term capital gains, if any, which are distributed to shareholders and which are designated by a fund as capital gain distributions, are taxable to shareholders as long-term capital gain distributions regardless of the length of time you have owned your shares.
| 174 |
With respect to Virtus Seix Georgia Tax-Exempt Bond Fund, Virtus Seix High Grade Municipal Bond Fund, Virtus Seix Investment Grade Tax-Exempt Bond Fund, Virtus Seix North Carolina Tax-Exempt Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix Virginia Intermediate Municipal Bond Fund, distributions of net investment income attributed to the tax-exempt interest earned by the fund and designated as “exempt-interest dividends” will be exempt from federal income tax. Such net investment income attributable to “private activity” bonds may be a preference item for purposes of the federal alternative minimum tax. Income exempt from federal tax may be subject to state and local income tax. The fund may invest a portion of its assets in securities that generate income that is not exempt from federal or state income tax.
Unless you elect to receive distributions in cash, dividends and capital gain distributions are paid in additional shares. All distributions, whether paid in cash or in additional shares, are subject to federal income tax and may be subject to state, local and other taxes.
| 175 |
The financial highlights for each fund reflect the historical financial highlights of its corresponding Predecessor Fund, a separate series of RidgeWorth Funds that was managed by RidgeWorth. Upon the completion of the reorganization of each Predecessor Fund with and into its respective fund, expected to occur on [_________], 2017, the Class A, Class C, Class R, Class I and Class IS Shares of each fund, as applicable, assumed the performance, financial and other historical information of the Class A, Class C, Class R, Class I and Class IS Shares, respectively, of the corresponding Predecessor Fund.
These tables are intended to help you understand each Predecessor Fund’s financial performance for the past five years or since inception. Some of this information reflects financial information for a single fund share. The total returns in the tables represent the rate that an investor would have earned or lost on an investment in a fund (assuming reinvestment of all dividends and distributions). This information has been audited by ____________________, the Predecessor Funds' independent registered public accounting firm. ____________________'s report, together with each Predecessor Fund’s financial statements, is included in the Predecessor Funds’ most recent Annual Report, which is available upon request.
| 176 |
| Virtus Mutual Funds | |
| [P.O. Box 8053] | |
| [Boston, MA 02266-8053] |
ADDITIONAL INFORMATION
You can find more information about the funds in the following documents:
Annual and Semiannual Reports Annual and semiannual reports contain more information about the funds’ investments. The annual report discusses the market conditions and investment strategies that significantly affected the funds’ performance during the last fiscal year.
Statement of Additional Information (SAI) The SAI contains more detailed information about the funds. It is incorporated by reference and is legally part of the prospectus.
Appendix A - Intermediary Sales Charge Discounts and Waivers contains more information about specific sales charge discounts and waivers available for shareholders who purchase fund shares through a specific intermediary. [It is incorporated by reference and legally part of this prospectus.]
To obtain free copies of these documents, you can download copies from the Individual Investors section of our Website, virtus.com, or you can request copies by calling us toll-free at 888-784-3863. You may also call this number to request other information about the funds or to make shareholder inquiries.
Information about the funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission’s ("SEC") Public Reference Room in Washington, DC. For information about the operation of the Public Reference Room, call 202-551-8090. Reports and other information about the funds are available in the EDGAR database on the SEC’s Internet site at sec.gov. You may also obtain copies upon payment of a duplicating fee by writing the Public Reference Section of the SEC, Washington, DC 20549-6009 or by electronic request at publicinfo@sec.gov .
Transfer/Sub-transfer Agent: 888-784-3863
Daily NAV Information
The daily NAV for each fund may be obtained from the Our Products section of our Web site, virtus.com .
Investment Company Act File No. 811-07705
[4-17]
| 177 |
Appendix A
Intermediary Sales Charge Discounts and Waivers
Specific intermediaries may have different policies and procedures regarding the availability of front-end sales load waivers or CDSC waivers, which are discussed below. In all instances, it is the purchaser's responsibility to notify the fund or the purchaser's financial intermediary at the time of purchase of any relationship or other facts qualifying the purchaser for sales charge waivers or discounts. For waivers and discounts not available through a particular intermediary, in order to receive these waivers or discounts shareholders will have to purchase fund shares through another intermediary offering such waivers or discounts or directly from the fund if the fund offers such waivers or discounts. Please see the section entitled "Sales Charges – What arrangement is best for you?" for more information on sales charges and waivers available for different classes.
The information in this Appendix is part of, and incorporated into, the fund's prospectus.
MERRILL LYNCH
Effective April 10, 2017, shareholders purchasing fund shares through a Merrill Lynch platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in this fund's prospectus or SAI.
Front-end Sales Load Waivers on Class A Shares available at Merrill Lynch
- Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan.
- Shares purchased by or through a 529 Plan.
- Shares purchased through a Merrill Lynch affiliated investment advisory program.
- Shares purchased by third party investment advisors on behalf of their advisory clients through Merrill Lynch's platform.
- Shares of funds purchased through the Merrill Edge Self-Directed platform (if applicable).
- Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).
- Shares exchanged from Class C ( i.e. level-load) shares of the same fund in the month of or following the 10-year anniversary of the purchase date.
- Employees and registered representatives of Merrill Lynch or its affiliates and their family members.
- Trustees of the fund, and employees of the fund's investment adviser or any of its affiliates, as described in this prospectus.
- Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).
CDSC Waivers on A and C Shares available at Merrill Lynch
- Death or disability of the shareholder.
- Shares sold as part of a systematic withdrawal plan as described in the Fund’s prospectus.
- Return of excess contributions from an IRA Account.
- Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½.
- Shares sold to pay Merrill Lynch fees but only if the transaction is initiated by Merrill Lynch.
- Shares acquired through a right of reinstatement.
- Shares held in retirement brokerage accounts, that are exchanged for a lower cost share class due to transfer to certain fee based accounts or platforms (applicable to A and C shares only).
Front-end load Discounts Available at Merrill Lynch:
Breakpoints, Rights of Accumulation & Letters of Intent
- Breakpoints as described in this prospectus.
- Rights of Accumulation (ROA) which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Merrill Lynch. Eligible fund family assets not held at Merrill Lynch may be included in the ROA calculation only if the shareholder notifies his or her financial advisor about such assets.
- Letters of Intent (LOI) which allow for breakpoint discounts based on anticipated purchases within a fund family, through Merrill Lynch, over a 13-month period of time.
Morgan Stanley WEALTH MANGEMENT
Class T Share Eligibility
Class T Shares are available to Morgan Stanley Wealth Management clients who purchase fund shares through a transactional brokerage account. Other share classes offered through this prospectus will not be available to Morgan Stanley Wealth Management clients who purchase mutual funds through a transactional brokerage account. Rights of accumulation, letters of intent, rights of reinstatement and exchange privileges are not available on purchases of Class T Shares.
Sales Charge Waivers
Class T Shares are available for purchase by Morgan Stanley Wealth Management clients with the front-end load waived as follows:
| · | Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans; however these plans are eligible to purchase Class T Shares through a transactional brokerage account. |
| · | Morgan Stanley Wealth Management employee and employee-related accounts according to Morgan Stanley’s account linking rules. |
| · | Shares purchased through reinvestment of dividends and capital gains distributions when purchasing shares of the same fund. |
| · | Mutual fund shares exchanged from an existing position in the same fund as part of a share class conversion instituted by Morgan Stanley Wealth Management. |
Unless specifically described above, no other front-end load waivers are available to mutual fund purchases by Morgan Stanley Wealth Management clients in transactional brokerage accounts.
101 Munson Street
Greenfield, MA 01301
| | | |
TICKER SYMBOL BY CLASS
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FUND
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A
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| |
C
|
| |
R
|
| |
I
|
| |
IS
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| |
T
|
|
| Value Funds | | | | | | | | ||||||||||||
| Virtus Ceredex Large-Cap Value Equity Fund | | |
SVIIX
|
| |
SVIFX
|
| | | | |
STVTX
|
| |
STVZX
|
| |
[ ]
|
|
| Virtus Ceredex Mid-Cap Value Equity Fund | | |
SAMVX
|
| |
SMVFX
|
| | | | |
SMVTX
|
| |
SMVZX
|
| |
[ ]
|
|
| Virtus Ceredex Small-Cap Value Equity Fund | | |
SASVX
|
| |
STCEX
|
| | | | |
SCETX
|
| | | | |
[ ]
|
|
| Growth Funds | | | | | | | | ||||||||||||
| Virtus Silvant Large-Cap Growth Stock Fund | | |
STCIX
|
| |
STCFX
|
| | | | |
STCAX
|
| |
STCZX
|
| |
[ ]
|
|
| Virtus Silvant Small-Cap Growth Stock Fund | | |
SCGIX
|
| |
SSCFX
|
| | | | |
SSCTX
|
| |
SCGZX
|
| |
[ ]
|
|
| Virtus Zevenbergen Innovative Growth Stock Fund | | |
SAGAX
|
| | | | | | | |
SCATX
|
| | | | |
[ ]
|
|
| International Fund | | | | | | | | ||||||||||||
| Virtus WCM International Equity Fund | | |
SCIIX
|
| | | | | | | |
STITX
|
| |
SCIZX
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| |
[ ]
|
|
| Allocation Strategies | | | | | | | | ||||||||||||
| Virtus Conservative Allocation Strategy Fund | | |
SLAAX
|
| |
CLVLX
|
| | | | |
CVMGX
|
| | | | |
[ ]
|
|
| Virtus Growth Allocation Strategy Fund | | |
[SGIAX]
|
| |
[SGILX]
|
| | | | |
[CLVGX]
|
| | | | |
[ ]
|
|
| Investment Grade Funds | | | | | | | | ||||||||||||
| Virtus Seix Core Bond Fund | | |
STGIX
|
| | | | |
SCIGX
|
| |
STIGX
|
| |
STGZX
|
| |
[ ]
|
|
| Virtus Seix Corporate Bond Fund | | |
SAINX
|
| |
STIFX
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| | | | |
STICX
|
| | | | |
[ ]
|
|
| Virtus Seix Total Return Bond Fund | | |
CBPSX
|
| | | | |
SCBLX
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| |
SAMFX
|
| |
SAMZX
|
| |
[ ]
|
|
| Virtus Seix U.S. Mortgage Fund | | |
SLTMX
|
| |
SCLFX
|
| | | | |
SLMTX
|
| | | | |
[ ]
|
|
| Short Duration Funds | | | | | | | | ||||||||||||
| Virtus Seix Limited Duration Fund | | | | | | | | | | | |
SAMLX
|
| | | | |
[ ]
|
|
| Virtus Seix Short-Term Bond Fund | | |
STSBX
|
| |
SCBSX
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| | | | |
SSBTX
|
| | | | |
[ ]
|
|
| Virtus Seix U.S. Government Securities Ultra-Short Bond Fund | | | | | | | | | | | |
SIGVX
|
| |
SIGZX
|
| |
[ ]
|
|
| Virtus Seix Ultra-Short Bond Fund | | | | | | | | | | | |
SISSX
|
| | | | |
[ ]
|
|
| High Yield Funds | | | | | | | | ||||||||||||
| Virtus Seix Floating Rate High Income Fund | | |
SFRAX
|
| |
SFRCX
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| | | | |
SAMBX
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| |
SFRZX
|
| |
[ ]
|
|
| Virtus Seix High Income Fund | | |
SAHIX
|
| | | | |
STHIX
|
| |
STHTX
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| |
STHZX
|
| |
[ ]
|
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| Virtus Seix High Yield Fund | | |
HYPSX
|
| | | | |
HYLSX
|
| |
SAMHX
|
| |
HYIZX
|
| |
[ ]
|
|
| Municipal Bond Funds | | | | | | | | ||||||||||||
| Virtus Seix Georgia Tax-Exempt Bond Fund | | |
SGTEX
|
| | | | | | | |
SGATX
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| | | | |
[ ]
|
|
| Virtus Seix High Grade Municipal Bond Fund | | |
SFLTX
|
| | | | | | | |
SCFTX
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| | | | |
[ ]
|
|
| Virtus Seix Investment Grade Tax-Exempt Bond Fund | | |
SISIX
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| | | | | | | |
STTBX
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| | | | |
[ ]
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|
| Virtus Seix North Carolina Tax-Exempt Bond Fund | | |
SNCIX
|
| | | | | | | |
CNCFX
|
| | | | |
[ ]
|
|
| Virtus Seix Short-Term Municipal Bond Fund | | |
SMMAX
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| | | | | | | |
CMDTX
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| | | | |
[ ]
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|
| Virtus Seix Virginia Intermediate Municipal Bond Fund | | |
CVIAX
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| | | | | | | |
CRVTX
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| | | | |
[ ]
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|
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Predecessor Fund
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| |
Fund
|
|
| RidgeWorth Ceredex Large Cap Value Equity Fund | | | Ceredex Large-Cap Value Equity Fund | |
| RidgeWorth Ceredex Mid-Cap Value Equity Fund | | | Ceredex Mid-Cap Value Equity Fund | |
| RidgeWorth Ceredex Small Cap Value Equity Fund | | | Ceredex Small-Cap Value Equity Fund | |
| RidgeWorth Silvant Large Cap Growth Stock Fund | | | Silvant Large-Cap Growth Stock Fund | |
| RidgeWorth Silvant Small Cap Growth Stock Fund | | | Silvant Small-Cap Growth Stock Fund | |
| RidgeWorth Innovative Growth Stock Fund | | | Zevenbergen Innovative Growth Stock Fund | |
| RidgeWorth International Equity Fund | | | WCM International Equity Fund | |
| RidgeWorth Conservative Allocation Strategy | | | Conservative Allocation Strategy Fund | |
| RidgeWorth Growth Allocation Strategy | | | Growth Allocation Strategy Fund | |
| RidgeWorth Moderate Allocation Strategy | | | Growth Allocation Strategy Fund | |
| RidgeWorth Seix Core Bond Fund | | | Seix Core Bond Fund | |
| RidgeWorth Seix Corporate Bond Fund | | | Seix Corporate Bond Fund | |
| RidgeWorth Seix Total Return Bond Fund | | | Seix Total Return Bond Fund | |
| RidgeWorth Seix U.S. Mortgage Fund | | | Seix U.S. Mortgage Fund | |
| RidgeWorth Seix Limited Duration Fund | | | Seix Limited Duration Fund | |
| RidgeWorth Seix Short-Term Bond Fund | | | Seix Short-Term Bond Fund | |
|
RidgeWorth Seix U.S. Government Securities Ultra-Short Bond Fund
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| |
Seix U.S. Government Securities Ultra-Short Bond Fund
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| RidgeWorth Seix Ultra-Short Bond Fund | | | Seix Ultra-Short Bond Fund | |
| RidgeWorth Seix Floating Rate High Income Fund | | | Seix Floating Rate High Income Fund | |
| RidgeWorth Seix High Income Fund | | | Seix High Income Fund | |
| RidgeWorth Seix High Yield Fund | | | Seix High Yield Fund | |
| RidgeWorth Seix Georgia Tax-Exempt Bond Fund | | | Seix Georgia Tax-Exempt Bond Fund | |
| RidgeWorth Seix High Grade Municipal Bond Fund | | | Seix High Grade Municipal Bond Fund | |
| RidgeWorth Seix Investment Grade Tax-Exempt Bond Fund | | | Seix Investment Grade Tax-Exempt Bond Fund | |
| RidgeWorth Seix North Carolina Tax-Exempt Bond Fund | | | Seix North Carolina Tax-Exempt Bond Fund | |
| RidgeWorth Seix Short-Term Municipal Bond Fund | | | Seix Short-Term Municipal Bond Fund | |
|
RidgeWorth Seix Virginia Intermediate Municipal Bond Fund
|
| | Seix Virginia Intermediate Municipal Bond Fund | |
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Fund Type
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Fund
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Investment Objective(s)
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Value
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Ceredex Large-Cap Value Equity Fund
|
| |
The fund has an investment objective of seeking to provide a high level of capital appreciation. As a secondary goal, the fund also seeks to provide current income.
|
|
| | Ceredex Mid-Cap Value Equity Fund | | | The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income. | | ||
| | Ceredex Small-Cap Value Equity Fund | | | The fund has an investment objective of seeking to provide capital appreciation. As a secondary goal, the fund also seeks to provide current income. | | ||
|
Growth
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| |
Silvant Large-Cap Growth Stock Fund
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| |
The fund has an investment objective of seeking to provide capital appreciation.
|
|
| | Silvant Small-Cap Growth Stock Fund | | | The fund has an investment objective of seeking to provide long-term capital appreciation. | | ||
| | Zevenbergen Innovative Growth Stock Fund | | | The fund has an investment objective of seeking to provide long-term capital appreciation. | | ||
| International | | | WCM International Equity Fund | | | The fund has an investment objective of seeking to provide long-term capital appreciation. | |
|
Allocation Strategies
|
| |
Conservative Allocation Strategy Fund
|
| |
The fund has an investment objective of seeking to provide a high level of capital appreciation and current income.
|
|
| | Growth Allocation Strategy Fund | | | The fund has an investment objective of seeking to provide long-term capital appreciation. | | ||
| Investment Grade | | | Seix Core Bond Fund | | | The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation. | |
| | | | Seix Corporate Bond Fund | | | The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation. | |
| | | | Seix Total Return Bond Fund | | | The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation. | |
| | | | Seix U.S. Mortgage Fund | | | The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation. | |
|
Short Duration
|
| |
Seix Limited Duration Fund
|
| |
The fund has an investment objective of seeking current income, while preserving liquidity and principal.
|
|
| | Seix Short-Term Bond Fund | | | The fund has an investment objective of seeking to maximize long term total return through a combination of current income and capital appreciation, consistent with capital preservation. | | ||
| | Seix U.S. Government Securities Ultra-Short Bond Fund | | | The fund has an investment objective of seeking to maximize current income consistent with capital preservation. | | ||
| | Seix Ultra-Short Bond Fund | | | The fund has an investment objective of seeking to maximize current income consistent with capital preservation. | |
|
Fund Type
|
| |
Fund
|
| |
Investment Objective(s)
|
|
|
High Yield
|
| |
Seix Floating Rate High Income Fund
|
| |
The fund has an investment objective of seeking to provide a high level of current income.
|
|
| | Seix High Income Fund | | | The fund has an investment objective of seeking high current income and, secondarily, total return (comprised of capital appreciation and income). | | ||
| | Seix High Yield Fund | | | The fund has an investment objective of seeking high income and, secondarily, capital appreciation. | | ||
| Municipal Bond | | | Seix Georgia Tax-Exempt Bond Fund | | | The fund has an investment objective of seeking current income exempt from federal and state income taxes for Georgia residents consistent with capital preservation. | |
| | | | Seix High Grade Municipal Bond Fund | | | The fund has an investment objective of seeking to maximize total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation. | |
| | | |
Seix Investment Grade Tax-Exempt Bond Fund
|
| | The fund has an investment objective of seeking to maximize high total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation. | |
| | | | Seix North Carolina Tax-Exempt Bond Fund | | | The fund has an investment objective of seeking current income exempt from federal and state income taxes for North Carolina residents consistent with capital preservation. | |
| | | | Seix Short-Term Municipal Bond Fund | | | The fund has an investment objective of seeking to maximize total return through (i) current income that is exempt from federal income taxes and (ii) capital appreciation consistent with capital preservation. | |
| | | | Seix Virginia Intermediate Municipal Bond Fund | | | The fund has an investment objective of seeking current income exempt from federal and state income taxes for Virginia residents consistent with capital preservation. | |
|
Type of Service Provider
|
| |
Name of Service Provider
|
| |
Timing of Release of Portfolio
Holdings Information |
|
| Adviser | | | RidgeWorth | | | Daily with no delay | |
| Subadviser | | | Ceredex | | | Daily with no delay | |
| Subadviser | | | Silvant | | | Daily with no delay | |
| Subadviser | | | Seix | | | Daily with no delay | |
| Subadviser | | | WCM | | | Daily with no delay | |
| Subadviser | | | Zevenbergen | | | Daily with no delay | |
| Administrator | | | Virtus Fund Services, LLC | | | Daily with no delay | |
| Distributor | | | VP Distributors, LLC | | | Daily with no delay | |
| Custodian | | | [State Street] | | | Daily with no delay | |
| Class Action Service Provider | | | [Battea] | | | Daily with no delay | |
| Sub-Financial Agent | | |
[BNY Mellon/State Street]
|
| | Daily with no delay | |
| Portfolio Redistribution Firm | | | Thompson Financial LLC | | | Fiscal quarter with 20 day delay | |
| Independent Registered Public Accounting Firm | | | [__________________] | | | Annually, within 15 business days of end of fiscal year. | |
| Performance Analytic Firm | | | FactSet Research Systems, Inc. | | | Daily with no delay | |
|
Type of Service Provider
|
| |
Name of Service Provider
|
| |
Timing of Release of Portfolio
Holdings Information |
|
| Back-end Compliance Monitoring System | | |
Financial Tracking Technologies, LLC
|
| | Daily with no delay | |
| Typesetting and Printing Firm for Financial Reports | | | R.R. Donnelley & Sons Co. | | | Quarterly, within 15 days of end of reporting period. | |
| Security Lending (as applicable) | | |
[State Street]
|
| | Daily with no delay | |
| Proxy Voting Service | | |
[Institutional Shareholder Services]
|
| | Daily, weekly, monthly, quarterly depending on subadviser | |
| Intermediary Selling Shares of the Funds | | | Merrill Lynch | | |
Quarterly within 10 days of quarter end
|
|
| | Portfolio Redistribution Firms | | | Bloomberg, Standard & Poor’s and Thompson Reuters | | | Various frequencies depending on the fund, which includes, but is not limited to: Monthly with 30-day delay or fiscal quarter with a 15-, 30- or 60-day delay. | |
| | Rating Agencies | | | Lipper Inc. and Morningstar | | | Various frequencies depending on the fund, which includes, but is not limited to: Monthly with 30-day delay or fiscal quarter with a 15-, 30- or 60-day delay. | |
| | Virtus Public Web site | | | Virtus Investment Partners, Inc. | | | Various frequencies depending on the fund, which includes, but is not limited to: Monthly with 30-day delay or fiscal quarter with a 15-, 30- or 60-day delay. | |
|
Trust
|
| |
Fund
|
| |
Class/Shares
|
| |||||||||||||||||||||
| |
A
|
| |
B
|
| |
C
|
| |
C1
|
| |
R
|
| |
I
|
| |
IS
|
| |
R6
|
| |||||
|
Virtus Alternative Solutions Trust
|
| |
Credit Opportunities Fund
|
| |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | | |
X
|
|
| | Multi-Strategy Target Return Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | | |
X
|
| ||
| | Select MLP and Energy Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | ||||||
| | Strategic Income Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | ||||||
| Virtus Equity Trust | | | Contrarian Value Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | | |
X
|
|
| | | | Enhanced Core Equity Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | ||||
| | | | Mid-Cap Core Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | ||||
| | | | Mid-Cap Growth Fund | | |
X
|
| |
X
|
| |
X
|
| | | | | | | |
X
|
| | | ||||
| | | | Quality Large-Cap Value Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | ||||
| | | | Quality Small-Cap Fund | | |
X
|
| | | | |
X
|
| | | | | | | |
X
|
| | | | |
X
|
|
| | | | Small-Cap Core Fund | | |
X
|
| |
X
|
| |
X
|
| | | | | | | |
X
|
| | | | |
X
|
|
|
Trust
|
| |
Fund
|
| |
Class/Shares
|
| |||||||||||||||||||||
| |
A
|
| |
B
|
| |
C
|
| |
C1
|
| |
R
|
| |
I
|
| |
IS
|
| |
R6
|
| |||||
| | | | Small-Cap Sustainable Growth Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Strategic Allocation Fund | | |
X
|
| | | | |
X
|
| | | | | | | | | | ||||||
| | | | Strategic Growth Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Tactical Allocation Fund | | |
X
|
| |
X
|
| |
X
|
| | | | | | ||||||||||
| Virtus Opportunities Trust | | | Alternatives Diversifier Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Bond Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | ||||||
| | | | CA Tax-Exempt Bond Fund | | |
X
|
| | | | | | | | | | |
X
|
| | | | ||||||
| | | | Emerging Markets Debt Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Emerging Markets Equity Income Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Emerging Markets Opportunities Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Emerging Markets Small-Cap Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Equity Trend Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Essential Resources Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Foreign Opportunities Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Global Equity Trend Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Global Infrastructure Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Global Opportunities Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Global Real Estate Securities Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Greater European Opportunities Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Herzeld Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | High Yield Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | International Equity Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | International Real Estate Securities Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | International Small-Cap Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | International Wealth Masters Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Low Duration Income Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Low Volatility Equity Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Multi-Asset Trend Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Multi-Sector Intermediate Bond Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Multi-Sector Short Term Bond Fund | | |
X
|
| |
X
|
| |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| |
X
|
|
| | | | Real Estate Securities Fund | | |
X
|
| |
X
|
| |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Sector Trend Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Senior Floating Rate Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | ||
| | | | Tax-Exempt Bond Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
| | | | Wealth Masters Fund | | |
X
|
| | | | |
X
|
| | | | |
X
|
| | | | ||||||
|
Virtus Retirement Trust
|
| |
DFA 2015 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2020 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2025 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2030 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2035 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2040 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2045 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2050 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2055 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
| | | |
DFA 2060 Target Date Retirement Income Fund
|
| |
X
|
| | | | | | | | | | |
X
|
| | | | |
X
|
| | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
|
Commodities-Related Investing
|
| | Commodity-related companies may underperform the stock market as a whole. The value of securities issued by commodity-related companies may be affected by factors affecting a particular industry or commodity. The operations and financial performance of commodity-related companies may be directly affected by commodity prices, especially those commodity-related companies that own the underlying commodity. The stock prices of such companies may also experience greater price volatility than other types of common stocks. Securities issued by commodity-related companies are sensitive to changes in the supply and demand for, and thus the prices of, commodities. Volatility of commodity prices, which may lead to a reduction in production or supply, may also negatively impact the performance of commodity and natural resources companies that are solely involved in the transportation, processing, storing, distribution or marketing of commodities. Volatility of commodity prices may also make it more difficult for commodity-related companies to raise capital to the extent the market perceives that their performance may be directly or indirectly tied to commodity prices. | | | ||
| | | | Certain types of commodities instruments (such as commodity-linked notes) are subject to the risk that the counterparty to the instrument will not perform or will be unable to perform in accordance with the terms of the instrument. | | | ||
| | | | Exposure to commodities and commodities markets may subject the Fund to greater volatility than investments in traditional securities. No active trading market may exist for certain commodities investments, which may impair the ability of the Fund to sell or to realize the full value of such investments in the event of the need to liquidate such investments. In addition, adverse market conditions may impair the liquidity of actively traded commodities investments. | | | ||
|
Debt Investing
|
| | Each Fund may invest in debt, or fixed income, securities. Debt, or fixed income, securities (which include corporate bonds, commercial paper, debentures, notes, government securities, municipal obligations, state- or state agency-issued obligations, obligations of foreign issuers, asset- or mortgage-backed securities, and other obligations) are used by issuers to borrow money and thus are debt obligations of the issuer. | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | Holders of debt securities are creditors of the issuer, normally ranking ahead of holders of both common and preferred stock as to dividends or upon liquidation. The issuer usually pays a fixed, variable, or floating rate of interest and must repay the amount borrowed at the security’s maturity. Some debt securities, such as zero-coupon securities (discussed below), do not pay interest but may be sold at a deep discount from their face value. | | | ||
| | | | Yields on debt securities depend on a variety of factors, including the general conditions of the money, bond, and note markets, the size of a particular offering, the maturity date of the obligation, and the rating of the issue. Debt securities with longer maturities tend to produce higher yields and are generally subject to greater price fluctuations in response to changes in market conditions than obligations with shorter maturities. An increase in interest rates generally will reduce the market value of portfolio debt securities, while a decline in interest rates generally will increase the value of the same securities. The achievement of a Fund’s investment objective depends in part on the continuing ability of the issuers of the debt securities in which the Fund invests to meet their obligations for the payment of principal and interest when due. Obligations of issuers of debt securities are subject to the provisions of bankruptcy, insolvency, sovereign immunity, and other laws that affect the rights and remedies of creditors. There is also the possibility that, as a result of litigation or other conditions, the ability of an issuer to pay, when due, the principal of and interest on its debt securities may be materially affected. | | | ||
|
[Acquisitional/Equipment Lines (delayed-draw term loans)
|
| | Acquisitional/equipment lines (delayed-draw term loans) are credits that may be drawn down for a given period to purchase specified assets or equipment or to make acquisitions. The issuer pays a fee during the commitment period (a ticking fee). The lines are then repaid over a specified period (the term-out period). Repaid amounts may not be re-borrowed. To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund’s custodian in an amount sufficient to cover its repurchase obligations. ] | | | ||
|
Collateralized Debt Obligations
|
| | Collateralized Debt Obligations (“CDOs”) are securitized interests in pools of assets. Assets called collateral usually comprise loans or debt instruments. | | | ||
| | | | A CDO may be called a collateralized loan obligation (“CLO”) or collateralized bond obligation (“CBO”) if it holds only loans or bonds, respectively. Investors bear the credit risk of the collateral. | | | ||
| | | | Multiple tranches of securities are issued by the CDO, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity, according to their degree of credit risk. | | | ||
| | | | If there are defaults or the CDO’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | Senior and mezzanine tranches are typically rated, with the former receiving ratings of A to AAA/Aaa and the latter receiving ratings of B to BBB/Baa. The ratings reflect both the credit quality of underlying collateral as well as how much protection a given tranche is afforded by tranches that are subordinate to it. | | | ||
|
Contingent Capital Securities
|
| | Contingent capital securities (sometimes referred to as “CoCos”) are debt or preferred securities with loss absorption characteristics built into the terms of the security, for example a mandatory conversion into common stock of the issuer under certain circumstances, such as the issuer’s capital ratio falling below a certain level. | | | ||
| | | | Since the common stock of the issuer may not pay a dividend, investors in these instruments could experience a reduced income rate, potentially to zero, and conversion would deepen the subordination of the investor, hence worsening a Fund’s standing in a bankruptcy. Some CoCos provide for a reduction in the value or principal amount of the security under such circumstances. In addition, most CoCos are considered to be high yield or “junk” securities and are therefore subject to the risks of investing in below investment grade securities. | | | ||
|
Convertible Securities
|
| | A convertible security is a bond, debenture, note, or other security that entitles the holder to acquire common stock or other equity securities of the same or a different issuer within a particular period of time at a specific price or formula. It generally entitles the holder to receive interest paid or accrued until the security matures or is redeemed, converted, or exchanged. Convertible securities may have several unique investment characteristics such as (1) higher yields than common stocks, but lower yields than comparable nonconvertible securities, (2) a lesser degree of fluctuation in value than the underlying stock since they have fixed income characteristics and (3) the potential for capital appreciation if the market price of the underlying common stock increases. | | | ||
| | | | Before conversion, convertible securities have characteristics similar to nonconvertible debt securities. Convertible securities often rank senior to common stock in a corporation’s capital structure and, therefore, are often viewed as entailing less risk than the corporation’s common stock, although the extent to which this is true depends in large measure on the degree to which the convertible security sells above its value as a fixed income security. However, because convertible securities are often viewed by the issuer as future common stock, they are often subordinated to other senior securities and therefore are rated one category lower than the issuer’s nonconvertible debt obligations or preferred stock. | | | ||
| | | | A convertible security may be subject to redemption or conversion at the option of the issuer at a predetermined price. If a convertible security held by the Fund is called for redemption, the Fund could be required to permit the issuer to redeem the security and convert it to the underlying common stock. The Fund generally would invest in convertible securities for their favorable price characteristics and total return potential, and would normally not exercise an option to convert. The Fund might be more willing to convert such securities to common stock. | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | A Fund’s subadviser will select only those convertible securities for which it believes (a) the underlying common stock is a suitable investment for the Fund and (b) a greater potential for total return exists by purchasing the convertible security because of its higher yield and/or favorable market valuation. However, the Fund may invest in convertible debt securities rated less than investment grade. Debt securities rated less than investment grade are commonly referred to as “junk bonds.” (For information about debt securities rated less than investment grade, see “High-Yield/High-Risk Fixed Income Securities (Junk Bonds)” under “Debt Investing” in this section of the SAI; for additional information about ratings on debt obligations, see Appendix A to this SAI.) | | | ||
|
Corporate Debt Securities
|
| | Each Fund may invest in debt securities issued by corporations, limited partnerships and other similar entities. A Fund’s investments in debt securities of domestic or foreign corporate issuers include bonds, debentures, notes and other similar corporate debt instruments, including convertible securities that meet the Fund’s minimum ratings criteria or if unrated are, in the Fund’s subadviser’s opinion, comparable in quality to corporate debt securities that meet those criteria. The rate of return or return of principal on some debt obligations may be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies or to the value of commodities, such as gold. | | | ||
|
[Custodial Receipts
|
| | A custodial receipt represents an indirect interest in a tax-exempt bond that is deposited with a custodian. Custodial receipts may be used to permit the sale of the deposited bond in smaller denominations than would otherwise be permitted. Frequently, custodial receipts are issued to attach bond insurance or other forms of credit enhancement to the deposited tax-exempt bond. Because a “separate security” is not created by the issuance of a receipt, many of the tax advantages bestowed upon holders of the deposited tax-exempt bond are also conferred upon the custodial receipt holder.] | | | ||
|
Dollar-denominated Foreign Debt Securities (“Yankee Bonds”)
|
| | Each Fund may invest in “Yankee bonds”, which are dollar-denominated instruments issued in the U.S. market by foreign branches of U.S. banks and U.S. branches of foreign banks. Since these instruments are dollar-denominated, they are not affected by variations in currency exchange rates. They are influenced primarily by interest rate levels in the United States and by the financial condition of the issuer, or of the issuer’s foreign parent. However, investing in these instruments may present a greater degree of risk than investing in domestic securities, due to less publicly available information, less securities regulation, war or expropriation. Special considerations may include higher brokerage costs and thinner trading markets. Investments in foreign countries could be affected by other factors including extended settlement periods. (See “Foreign Investing” in this section of the SAI for additional information about investing in foreign countries.) | | | ||
|
Duration
|
| | Duration is a time measure of a bond’s interest-rate sensitivity, based on the weighted average of the time periods over which a bond’s cash flows accrue to the bondholder. Time periods are weighted by | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | multiplying by the present value of its cash flow divided by the bond’s price. (A bond’s cash flows consist of coupon payments and repayment of capital.) A bond’s duration will almost always be shorter than its maturity, with the exception of zero-coupon bonds, for which maturity and duration are equal. | | | ||
|
[Equipment Trust Certificates (ETCs)
|
| | ETCs are issued by a trust formed to finance large purchases of equipment, such as airplanes, at favorable interest rates. Legal title on such equipment is held by a trustee. The trustee leases the equipment and sells ETCs at a small discount to the purchase price of the equipment. The lease payments are then used to pay principal and interest to the ETC holders.] | | | ||
|
Equity-Linked Securities
|
| | Each Fund may invest in equity-linked securities, including, among others, PERCS, ELKS or LYONs, which are securities that are convertible into, or the value of which is based upon the value of, equity securities upon certain terms and conditions. | | | ||
| | | | The amount received by an investor at maturity of such securities is not fixed but is based on the price of the underlying common stock. It is impossible to predict whether the price of the underlying common stock will rise or fall. | | | ||
| | | | Trading prices of the underlying common stock will be influenced by the issuer’s operational results, by complex, interrelated political, economic, financial or other factors affecting the capital markets, the stock exchanges on which the underlying common stock is traded and the market segment of which the issuer is a part. In addition, it is not possible to predict how equity-linked securities will trade in the secondary market. The market for such securities may be shallow, and high volume trades may be possible only with discounting. | | | ||
| | | | In addition to the foregoing risks, the return on such securities depends on the creditworthiness of the issuer of the securities, which may be the issuer of the underlying securities or a third-party investment banker or other lender. The creditworthiness of such third-party issuer equity-linked securities may, and often does, exceed the creditworthiness of the issuer of the underlying securities. | | | ||
| | | | The advantage of using equity-linked securities over traditional equity and debt securities is that the former are income producing vehicles that may provide a higher income than the dividend income on the underlying equity securities while allowing some participation in the capital appreciation of the underlying equity securities. | | | ||
| | | | Another advantage of using equity-linked securities is that they may be used for hedging to reduce the risk of investing in the generally more volatile underlying equity securities. | | | ||
|
Preferred Equity Redemption Cumulative Stock (PERCS)
|
| |
PERCS technically is preferred stock with some characteristics of common stock.
|
| | ||
| | PERCS are mandatorily convertible into common stock after a period of time, usually three years, during which the investors’ capital gains are capped, usually at 30%. | | | ||||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
|
High-Yield/High-Risk Fixed Income Securities (“Junk Bonds”)
|
| | Investments in securities rated “BB” or below by S&P or Fitch, or “Ba” or below by Moody’s generally provide greater income (leading to the name “high-yield” securities) and opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility, liquidity, and principal and income risk. These securities are regarded as predominantly speculative as to the issuer’s continuing ability to meet principal and interest payment obligations. Analysis of the creditworthiness of issuers of lower-quality debt securities may be more complex than for issuers of higher-quality debt securities. | | | ||
| | | | Interest-bearing securities typically experience appreciation when interest rates decline and depreciation when interest rates rise. The market values of low-rated securities tend to reflect individual corporate developments to a greater extent than do higher-rated securities, which react primarily to fluctuations in the general level of interest rates. Low-rated securities also tend to be more sensitive to economic conditions than higher-rated securities. As a result, they generally involve more credit risks than securities in the higher-rated categories. During an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of low-rated securities may experience financial stress and may not have sufficient revenues to meet their payment obligations. The issuer’s ability to service its debt obligations may also be adversely affected by specific corporate developments, the issuer’s inability to meet specific projected business forecasts or the unavailability of additional financing. The risk of loss due to default by an issuer of low-rated securities is generally considered to be significantly greater than issuers of higher-rated securities because such securities are usually unsecured and are often subordinated to other creditors. Further, if the issuer of a low-rated security defaulted, the applicable Fund might incur additional expenses in seeking recovery. Periods of economic uncertainty and changes would also generally result in increased volatility in the market prices of low-rated securities and thus in the applicable Fund’s NAV. | | | ||
| | | | Low-rated securities often contain redemption, call or prepayment provisions which permit the issuer of the securities containing such provisions to, at its discretion, redeem the securities. During periods of falling interest rates, issuers of low-rated securities are likely to redeem or prepay the securities and refinance them with debt securities with a lower interest rate. To the extent an issuer is able to refinance the securities or otherwise redeem them, the applicable Fund may have to replace the securities with a lower yielding security which would result in lower returns for the Fund. | | | ||
| | | | A Fund may have difficulty disposing of certain low-rated securities because there may be a thin trading market for such securities. Because not all dealers maintain markets in all low-rated securities, there is no established retail secondary market for many of these securities. The Funds anticipate that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for higher-rated securities. The lack of a liquid secondary market may have an adverse impact on the market price of the | | | ||
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| | | | security, and accordingly, the NAV of a particular Fund and its ability to dispose of particular securities when necessary to meet its liquidity needs, or in response to a specific economic event, or an event such as a deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its respective portfolio. Market quotations are generally available on many low-rated issues only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. During periods of thin trading, the spread between bid and asked prices is likely to increase significantly. In addition, adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of low-rated securities, especially in a thinly-traded market. If a Fund experiences unexpected net redemptions, it may be forced to liquidate a portion of its portfolio securities without regard to their investment merits. Due to the limited liquidity of low-rated securities, the Fund may be forced to liquidate these securities at a substantial discount. Any such liquidation would reduce the Fund’s asset base over which expenses could be allocated and could result in a reduced rate of return for the Fund. | | | ||
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Interest Rate Environment Risk
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| | In the wake of the financial crisis that began in 2007, the Federal Reserve System attempted to stabilize the U.S. economy and support the U.S. economic recovery by keeping the federal funds rate at or near zero percent. In addition, the Federal Reserve has purchased large quantities of securities issued or guaranteed by the U.S. government, its agencies or instrumentalities on the open market (the “quantitative easing program”). The Federal Reserve has since increased the federal funds rate as of December 2015, however, the United States continues to experience historically low interest rate levels. A low interest rate environment may have an adverse impact on each Fund’s ability to provide a positive yield to its shareholders and pay expenses out of Fund assets because of the low yields from the Fund’s portfolio investments. | | | ||
| | | | However, continued economic recovery and the cessation of the quantitative easing program increase the risk that interest rates will rise in the near future and that the Funds will face a heightened level of interest rate risk. Federal Reserve policy changes may expose fixed-income and related markets to heightened volatility and may reduce liquidity for certain Fund investments, which could cause the value of a Fund’s investments and a Fund’s share price to decline or create difficulties for the Fund in disposing of investments. A Fund that invests in derivatives tied to fixed-income markets may be more substantially exposed to these risks than a Fund that does not invest in derivatives. A Fund could also be forced to liquidate its investments at disadvantageous times or prices, thereby adversely affecting the Fund. To the extent a Fund experiences high redemptions because of these policy changes, the Fund may experience increased portfolio turnover, which will increase the costs that the Fund incurs and lower the Fund’s performance. | | | ||
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Inverse Floating Rate Obligations
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| | Certain variable rate securities pay interest at a rate that varies inversely to prevailing short-term interest rates (sometimes referred to as inverse floaters). For example, upon reset the interest rate payable on a security may go down when the underlying index has risen. During periods when short-term interest rates are relatively low as compared to long-term interest rates, the Fund may attempt to enhance its yield by purchasing inverse floaters. Certain inverse floaters may have an interest rate reset mechanism that multiplies the effects of changes in the underlying index. While this form of leverage may increase the security’s yield, it may also increase the volatility of the security’s market value. | | | ||
| | | | Similar to other variable and floating rate obligations, effective use of inverse floaters requires skills different from those needed to select most portfolio securities. If movements in interest rates are incorrectly anticipated, a Fund holding these instruments could lose money and its NAV could decline. | | | ||
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Letters of Credit
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| | Debt obligations, including municipal obligations, certificates of participation, commercial paper and other short-term obligations, may be backed by an irrevocable letter of credit of a bank that assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks that, in the opinion of the relevant Fund’s subadviser, are of investment quality comparable to other permitted investments of the Fund may be used for Letter of Credit-backed investments. | | | ||
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Loan and Debt Participations and Assignments
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| | A loan participation agreement involves the purchase of a share of a loan made by a bank to a company in return for a corresponding share of the borrower’s principal and interest payments. Loan participations of the type in which the Fund may invest include interests in both secured and unsecured corporate loans. When a Fund purchases loan assignments from lenders, it will acquire direct rights against the borrower, but these rights and the Fund’s obligations may differ from, and be more limited than, those held by the assignment lender. The principal credit risk associated with acquiring loan participation and assignment interests is the credit risk associated with the underlying corporate borrower. There is also a risk that there may not be a readily available market for participation loan interests and, in some cases, this could result in the Fund disposing of such securities at a substantial discount from face value or holding such securities until maturity. | | | ||
| | | | There is typically a limited amount of public information available about loans because loans normally are not registered with the SEC or any state securities commission or listed on any securities exchange. Certain of the loans in which a Fund may invest may not be considered “securities,” and therefore the Fund may not be entitled to rely on the anti-fraud protections of the federal securities laws with respect to those loans in the event of fraud or misrepresentation by a borrower. A Fund may come into possession of material, non-public information about a borrower as a result of the Fund’s ownership of a loan or other floating-rate instrument of the borrower. Because of prohibitions on trading in securities of issuers while in possession of | | | ||
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| | | | material, non-public information, the Fund might be unable to enter into a transaction in a publicly-traded security of the borrower when it would otherwise be advantageous to do so. | | | ||
| | | | Loans trade in an unregulated inter-dealer or inter-bank secondary market. Purchases and sales of loans are generally subject to contractual restrictions that must be satisfied before a loan can be bought or sold. These restrictions may (i) impede the Fund’s ability to buy or sell loans; (ii) negatively affect the transaction price; (iii) affect the counterparty credit risk borne by the Fund; (iv) impede the Fund’s ability to timely vote or otherwise act with respect to loans; and (v) expose the Fund to adverse tax or regulatory consequences. | | | ||
| | | | In the event that a corporate borrower failed to pay its scheduled interest or principal payments on participations held by the Fund, the market value of the affected participation would decline, resulting in a loss of value of such investment to the Fund. Accordingly, such participations are speculative and may result in the income level and net assets of the Fund being reduced. Moreover, loan participation agreements generally limit the right of a participant to resell its interest in the loan to a third party and, as a result, loan participations may be deemed by the Fund to be illiquid investments. A Fund will invest only in participations with respect to borrowers whose creditworthiness is, or is determined by the Fund’s subadviser to be, substantially equivalent to that of issuers whose senior unsubordinated debt securities are rated B or higher by Moody’s or S&P. For the purposes of diversification and/or concentration calculations, both the borrower and issuer will be considered an “issuer.” | | | ||
| | | | The Funds may purchase from banks participation interests in all or part of specific holdings of debt obligations. Each participation interest is backed by an irrevocable letter of credit or guarantee of the selling bank that the relevant Fund’s subadviser has determined meets the prescribed quality standards of the Fund. Thus, even if the credit of the issuer of the debt obligation does not meet the quality standards of the Fund, the credit of the selling bank will. | | | ||
| | | | Loan participations and assignments may be illiquid and therefore subject to the Funds’ limitations on investments in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Senior Loans
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| | A senior floating rate loan (“Senior Loan”) is typically originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Agent”) for a group of loan investors (“Loan Investors”). The Agent typically administers and enforces the Senior Loan on behalf of the other Loan Investors in the syndicate. In addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Loan Investors. | | | ||
| | | | Senior Loans primarily include senior floating rate loans and secondarily senior fixed rate loans, and interests therein. Loan interests primarily take the form of assignments purchased in the primary or secondary market. Loan interests may also take the form of participation interests in a Senior Loan. Such loan interests may be | | | ||
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Investment Technique
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Description and Risks
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| | | | acquired from U.S. or foreign commercial banks, insurance companies, finance companies or other financial institutions who have made loans or are Loan Investors or from other investors in loan interests. | | | ||
| | | | The Fund typically purchases “assignments” from the Agent or other Loan Investors. The purchaser of an assignment typically succeeds to all the rights and obligations under the Loan Agreement of the assigning Loan Investor and becomes a Loan Investor under the Loan Agreement with the same rights and obligations as the assigning Loan Investor. | | | ||
| | | | Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning Loan Investor. | | | ||
| | | | Each Fund may invest up to 10% of its total assets in “participations.” Loan participations are interests in loans to corporations, which loans are administered by the lending bank or agent for a syndicate of lending banks. In a Loan participation, the borrower corporation is the underlying issuer of the loan, but the Fund derives its rights in the loan participation from the intermediary bank. Because the intermediary bank does not guarantee a Loan participation, it is subject to the credit risks associated with the underlying corporate borrower. | | | ||
| | | | Participations by the Fund in a Loan Investor’s portion of a Senior Loan typically will result in the Fund having a contractual relationship only with such Loan Investor, not with the borrower. As a result, the Fund may have the right to receive payments of principal, interest and any fees to which it is entitled only from the Loan Investor selling the participation and only upon receipt by such Loan Investor of such payments from the borrower. | | | ||
| | | | In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the Loan Agreement, nor any rights with respect to any funds acquired by other Loan Investors through set-off against the borrower and the Fund may not directly benefit from the collateral supporting the Senior Loan in which it has purchased the participation. | | | ||
| | | | As a result, the Fund may assume the credit risk of both the borrower and the Loan Investor selling the participation. In the event of the insolvency of the Loan Investor selling a participation, the Fund may be treated as a general creditor of such Loan Investor. The selling Loan Investors with respect to such participations will likely conduct their principal business activities in the banking, finance and financial services industries. | | | ||
| | | | Persons engaged in such industries may be more susceptible to, among other things, fluctuations in interest rates, changes in the Federal Open Market Committee’s monetary policy, governmental regulations concerning such industries and capital raising activities generally, and fluctuations in the financial markets generally. | | | ||
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Investment Technique
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| | | | In the event of bankruptcy or insolvency of the corporate borrower, a Loan participation may be subject to certain defenses that can be asserted by the borrower as a result of improper conduct by the seller. | | | ||
| | | | In addition, in the event the underlying corporate borrower fails to pay principal and interest when due, the Fund may be subject to delays, expenses, and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of the borrower. | | | ||
| | | | Under the terms of a Loan participation, the Fund may be regarded as a creditor of the seller of the loan participation (rather than of the underlying corporate borrower), so that the Fund may also be subject to the risk that the seller of the loan participation may become insolvent. | | | ||
| | | | The secondary market for loan participations is limited and any such participation purchased by the Fund may be regarded as illiquid. | | | ||
| | | | A borrower must comply with various restrictive covenants contained in a loan agreement or note purchase agreement between the borrower and the holders of the Senior Loan (the “Loan Agreement”). The Fund will generally rely upon the Agent or an intermediate participant to receive and forward to the Fund its portion of the principal and interest payments on the Senior Loan. Furthermore, unless under the terms of a Participation Agreement the Fund has direct recourse against the borrower, the Fund will rely on the Agent and the other Loan Investors to use appropriate credit remedies against the borrower. | | | ||
| | | | With respect to Senior Loans for which the Agent does not perform administrative and enforcement functions, the Fund will perform such tasks on its own behalf, although a collateral bank will typically hold any collateral on behalf of the Fund and the other Loan Investors pursuant to the applicable Loan Agreement. | | | ||
| | | | A Fund may purchase and retain in its portfolio a Senior Loan where the borrower has experienced, or may be perceived to be likely to experience, credit problems, including involvement in or recent emergence from bankruptcy reorganization proceedings or other forms of debt restructuring. | | | ||
| | | | Such investments may provide opportunities for enhanced income as well as capital appreciation. At times, in connection with the restructuring of a Senior Loan either outside of bankruptcy court or in the context of bankruptcy court proceedings, a Fund may determine or be required to accept equity securities or junior debt securities in exchange for all or a portion of a Senior Loan. As soon as reasonably practical, a Fund will divest itself of any equity securities or any junior debt securities received if it is determined that the security is an ineligible holding for a Fund. | | | ||
| | | | A Fund may acquire interests in Senior Loans which are designed to provide temporary or “bridge” financing to a borrower pending the sale of identified assets or the arrangement of longer-term loans or the issuance and sale of debt obligations. Bridge loans are often unrated. | | | ||
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| | | | A Fund may also invest in Senior Loans of borrowers that have obtained bridge loans from other parties. A borrower’s use of bridge loans involves a risk that the borrower may be unable to locate permanent financing to replace the bridge loan, which may impair the borrower’s perceived creditworthiness. | | | ||
| | | | A Fund will be subject to the risk that collateral securing a loan will decline in value or have no value. Such a decline, whether as a result of bankruptcy proceedings or otherwise, could cause the Senior Loan to be under-collateralized or unsecured. In most credit agreements there is no formal requirement to pledge additional collateral. | | | ||
| | | | In addition, a Fund may invest in Senior Loans guaranteed by, or secured by assets of, shareholders or owners, even if the Senior Loans are not otherwise collateralized by assets of the borrower; provided, however, that such guarantees are fully secured. | | | ||
| | | | If a borrower becomes involved in bankruptcy proceedings, a court may invalidate a Fund’s security interest in the loan collateral or subordinate a Fund’s rights under the Senior Loan to the interests of the borrower’s unsecured creditors or cause interest previously paid to be refunded to the borrower. | | | ||
| | | | If a court requires interest to be refunded, it could negatively affect a Fund’s performance. Such action by a court could be based, for example, on a “fraudulent conveyance” claim to the effect that the borrower did not receive fair consideration for granting the security interest in the loan collateral to a Fund or a “preference claim” that a pre-petition creditor received a greater recovery on an existing debt than it would have in a liquidation situation. | | | ||
| | | | There are also other events, such as the failure to perfect a security interest due to faulty documentation or faulty official filings, which could lead to the invalidation of a Fund’s security interest in loan collateral. | | | ||
| | | | If a Fund’s security interest in loan collateral is invalidated or the Senior Loan is subordinated to other debt of a borrower in bankruptcy or other proceedings, a Fund would have substantially lower recovery, and perhaps no recovery on the full amount of the principal and interest due on the Loan, or a Fund could also have to refund interest. | | | ||
| | | | A Fund may acquire warrants and other equity securities as part of a unit combining a Senior Loan and equity securities of a borrower or its affiliates. The acquisition of such equity securities will only be incidental to a Fund’s purchase of a Senior Loan. | | | ||
| | | | A Fund may also acquire equity securities or debt securities (including non-dollar denominated debt securities) issued in exchange for a Senior Loan or issued in connection with the debt restructuring or reorganization of a borrower, or if such acquisition, in the judgment of the Subadviser, may enhance the value of a Senior Loan or would otherwise be consistent with a Fund’s investment policies. | | | ||
| | | | Economic and other market events may reduce the demand for certain senior loans held by the Fund, which may adversely impact the net asset value of the Fund. | | | ||
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Investment Technique
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Municipal Securities and Related Investments
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| | Tax-exempt municipal securities are debt obligations issued by the various states and their subdivisions (e.g., cities, counties, towns, and school districts) to raise funds, generally for various public improvements requiring long-term capital investment. Purposes for which tax-exempt bonds are issued include flood control, airports, bridges and highways, housing, medical facilities, schools, mass transportation and power, water or sewage plants, as well as others. Tax-exempt bonds also are occasionally issued to retire outstanding obligations, to obtain funds for operating expenses or to loan to other public or, in some cases, private sector organizations or to individuals. | | | ||
| | | | Yields on municipal securities are dependent on a variety of factors, including the general conditions of the money market and the municipal bond market, the size of a particular offering, the maturity of the obligations and the rating of the issue. Municipal securities with longer maturities tend to produce higher yields and are generally subject to potentially greater capital appreciation and depreciation than obligations with shorter maturities and lower yields. The market prices of municipal securities usually vary, depending upon available yields. An increase in interest rates will generally reduce the value of portfolio investments, and a decline in interest rates will generally increase the value of portfolio investments. The ability of the Fund to achieve its investment objective is also dependent on the continuing ability of the issuers of municipal securities in which the Fund invests to meet their obligations for the payment of interest and principal when due. The ratings of Moody’s and S&P represent their opinions as to the quality of municipal securities which they undertake to rate. Ratings are not absolute standards of quality; consequently, municipal securities with the same maturity, coupon, and rating may have different yields. There are variations in municipal securities, both within a particular classification and between classifications, depending on numerous factors. It should also be pointed out that, unlike other types of investments, municipal securities have traditionally not been subject to regulation by, or registration with, the SEC, although there have been proposals which would provide for such regulation in the future. | | | ||
| | | | The federal bankruptcy statutes relating to the debts of political subdivisions and authorities of states of the United States provide that, in certain circumstances, such subdivisions or authorities may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings could result in material and adverse changes in the rights of holders of their obligations. | | | ||
| | | | Lawsuits challenging the validity under state constitutions of present systems of financing public education have been initiated or adjusted in a number of states, and legislation has been introduced to effect changes in public school financing in some states. In other instances there have been lawsuits challenging the issuance of pollution control revenue bonds or the validity of their issuance under state or federal law which could ultimately affect the validity of those municipal securities or the tax-free nature of the interest thereon. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | Descriptions of some of the municipal securities and related investment types most commonly acquired by the Funds are provided below. In addition to those shown, other types of municipal investments are, or may become, available for investment by the Funds. For the purpose of each Fund’s investment restrictions set forth in this SAI, the identification of the “issuer” of a municipal security which is not a general obligation bond is made by the applicable Fund’s subadviser on the basis of the characteristics of the obligation, the most significant of which is the source of funds for the payment of principal and interest on such security. | | | ||
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Municipal Bonds
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| | Municipal bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued, have two principal classifications: general obligation bonds and revenue bonds. Another type of municipal bond is referred to as an industrial development bond. | | | ||
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General Obligation Bonds
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| | Issuers of general obligation bonds include states, counties, cities, towns, and regional districts. The proceeds of these obligations are used to fund a wide range of public projects, including construction or improvement of schools, highways and roads, and water and sewer systems. The basic security behind general obligation bonds is the issuer’s pledge of its full faith and credit and taxing power for the payment of principal and interest. The taxes that can be levied for the payment of debt service may be limited or unlimited as to the rate or amount of special assessments. | | | ||
| Industrial Development Bonds | | | Industrial development bonds, which are considered municipal bonds if the interest paid is exempt from Federal income tax, are issued by or on behalf of public authorities to raise money to finance various privately operated facilities for business and manufacturing, housing, sports arenas and pollution control. These bonds are also used to finance public facilities such as airports, mass transit systems, ports and parking. The payment of the principal and interest on such bonds is dependent solely on the ability of the facility’s user to meet its financial obligations and the pledge, if any, of real and personal property so financed as security for such payment. | | | ||
| Revenue Bonds | | | The principal security for a revenue bond is generally the net revenues derived from a particular facility, group of facilities, or, in some cases, the proceeds of a special excise or other specific revenue source. Revenue bonds are issued to finance a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges, and tunnels; port and airport facilities; colleges and universities; and hospitals. Although the principal security behind these bonds may vary, many provide additional security in the form of a debt service reserve fund whose money may be used to make principal and interest payments on the issuer’s obligations. Housing finance authorities have a wide range of security; including partially or fully insured mortgages, rent subsidized and/or collateralized mortgages, and/or the net revenues from housing or other public projects. Some authorities provide further security in the form of a state’s ability (without obligation) to make up deficiencies in the debt service reserve Fund. | | | ||
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| | | | Resource recovery bonds are a type of revenue bond issued to build facilities such as solid waste incinerators or waste-to-energy plants. Typically, a private corporation will be involved, at least during the construction phase, and the revenue stream will be secured by fees or rents paid by municipalities for use of the facilities. The viability of a resource recovery project, environmental protection regulations, and project operator tax incentives may affect the value and credit quality of resource recovery bonds. | | | ||
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Municipal Forwards
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| | Municipal forwards are forward commitments for the purchase of tax-exempt bonds with a specified coupon to be delivered by an issuer at a future date, typically exceeding 45 days but, normally less than one year after the commitment date. | | | ||
| | | | Municipal forwards are normally used as a refunding mechanism for bonds that may only be redeemed on a designated future date. | | | ||
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Municipal Leases
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| | Each Fund may acquire participations in lease obligations or installment purchase contract obligations (hereinafter collectively called “lease obligations”) of municipal authorities or entities. Although lease obligations do not constitute general obligations of the municipality for which the municipality’s taxing power is pledged, a lease obligation may be backed by the municipality’s covenant to budget for, appropriate, and make the payments due under the lease obligation. However, certain lease obligations contain “non-appropriation” clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the “non-appropriation” risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a “non-appropriation” lease, the Fund’s ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property in the event foreclosure might prove difficult. The Fund’s subadviser will evaluate the credit quality of a municipal lease and whether it will be considered liquid. (See “Illiquid and Restricted Investments” in this section of the SAI for information regarding the implications of these investments being considered illiquid.) | | | ||
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Municipal Notes
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| | Municipal notes generally are used to provide for short-term working capital needs and generally have maturities of one year or less. Municipal notes include bond anticipation notes, construction loan notes, revenue anticipation notes and tax anticipation notes. | | | ||
| Bond Anticipation Notes | | | Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. In most cases, the long-term bonds then provide the money for the repayment of the notes. | | | ||
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Construction Loan Notes
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| | Construction loan notes are sold to provide construction financing. After successful completion and acceptance, many projects receive permanent financing through FNMA or GNMA. | | | ||
| Revenue Anticipation Notes | | | Revenue anticipation notes are issued in expectation of receipt of other types of revenue, such as Federal revenues available under Federal revenue sharing programs. | | | ||
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| Tax Anticipation Notes | | | Tax anticipation notes are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income, sales, use and business taxes, and are payable from these specific future taxes. | | | ||
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Taxable Municipal Securities
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| | Taxable municipal securities are municipal securities the interest on which is not exempt from federal income tax. Taxable municipal securities include “private activity bonds” that are issued by or on behalf of states or political subdivisions thereof to finance privately-owned or operated facilities for business and manufacturing, housing, sports, and pollution control and to finance activities of and facilities for charitable institutions. Private activity bonds are also used to finance public facilities such as airports, mass transit systems, ports, parking lots, and low income housing. The payment of the principal and interest on private activity bonds is not backed by a pledge of tax revenues, and is dependent solely on the ability of the facility’s user to meet its financial obligations, and may be secured by a pledge of real and personal property so financed. Interest on these bonds may not be exempt from federal income tax. | | | ||
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Tax-Exempt Commercial Paper
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| | Tax-exempt commercial paper is a short-term obligation with a stated maturity of 365 days or less. It is issued by state and local governments or their agencies to finance seasonal working capital needs or as short-term financing in anticipation of longer-term financing. | | | ||
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Participation on Creditors’ Committees
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| | While the Funds do not invest in securities to exercise control over the securities’ issuers, each Fund may, from time to time, participate on committees formed by creditors to negotiate with the management of financially troubled issuers of securities held by the Fund. Such participation may subject the relevant Fund to expenses such as legal fees and may deem the Fund an “insider” of the issuer for purposes of the Federal securities laws, and expose the Fund to material nonpublic information of the issuer, and therefore may restrict the Fund’s ability to purchase or sell a particular security when it might otherwise desire to do so. Participation by a Fund on such committees also may expose the Fund to potential liabilities under the federal bankruptcy laws or other laws governing the rights of creditors and debtors. A Fund will participate on such committees only when the Fund’s subadviser believes that such participation is necessary or desirable to enforce the Fund’s rights as a creditor or to protect the value of securities held by the Fund. | | | ||
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Payable in Kind (“PIK”) Bonds
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| | PIK bonds are obligations which provide that the issuer thereof may, at its option, pay interest on such bonds in cash or “in kind”, which means in the form of additional debt securities. Such securities benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of such cash. The Funds will accrue income on such investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Funds’ distribution obligations. The market prices of PIK bonds generally are more volatile than the market prices of securities that pay interest periodically, and they are likely to respond to changes | | | ||
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Investment Technique
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| | | | in interest rates to a greater degree than would otherwise similar bonds on which regular cash payments of interest are being made. | | | ||
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Ratings
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| | The rating or quality of a debt security refers to a rating agency’s assessment of the issuer’s creditworthiness, i.e., its ability to pay principal and interest when due. Higher ratings indicate better credit quality, as rated by independent rating organizations such as Moody’s, S&P or Fitch, which publish their ratings on a regular basis. Appendix A provides a description of the various ratings provided for bonds (including convertible bonds), municipal bonds, and commercial paper. | | | ||
| | | | After a Fund purchases a debt security, the rating of that security may be reduced below the minimum rating acceptable for purchase by the Fund. A subsequent downgrade does not require the sale of the security, but the Fund’s subadviser will consider such an event in determining whether to continue to hold the obligation. To the extent that ratings established by Moody’s or S&P may change as a result of changes in such organizations or their rating systems, a Fund will invest in securities which are deemed by the Fund’s subadviser to be of comparable quality to securities whose current ratings render them eligible for purchase by the Fund. | | | ||
| | | | Credit ratings issued by credit rating agencies evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market-value risk and therefore may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the condition of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. | | | ||
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Revolving Credit Facilities (Revolvers)
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| | Revolvers are borrowing arrangements in which the lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. As the borrower repays the loan, an amount equal to the repayment may be borrowed again during the term of the Revolver and usually provides for floating or variable rates of interest. | | | ||
| | | | These commitments may have the effect of requiring the Fund to increase its investment in a company at a time when it might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To avoid any leveraging concerns, the Fund will segregate or earmark liquid assets with the Fund’s custodian in an amount sufficient to cover its obligations to fund Revolvers. | | | ||
| | | | The Fund may invest in Revolvers with credit quality comparable to that of issuers of its other investments. | | | ||
| | | | Revolvers may be subject to restrictions on transfer, and only limited opportunities may exist to resell such instruments. As a result, the Fund may be unable to sell such investments at an opportune time or may have to resell them at less than fair market value. | | | ||
| | | | Each Fund currently intends to treat Revolvers for which there is no readily available market as illiquid for purposes of that Fund’s limitation on illiquid investments. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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Sovereign Debt
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| | Each Fund may invest in “sovereign debt,” which is issued or guaranteed by foreign governments (including countries, provinces and municipalities) or their agencies and instrumentalities. Sovereign debt may trade at a substantial discount from face value. The Funds may hold and trade sovereign debt of foreign countries in appropriate circumstances to participate in debt conversion programs. Emerging-market country sovereign debt involves a higher degree of risk than that of developed markets, is generally lower-quality debt, and is considered speculative in nature due, in part, to the extreme and volatile nature of debt burdens in such countries and because emerging market governments can be relatively unstable. The issuer or governmental authorities that control sovereign-debt repayment (“sovereign debtors”) may be unable or unwilling to repay principal or interest when due in accordance with the terms of the debt. A sovereign debtor’s willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash-flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor’s policy towards the IMF, and the political constraints to which the sovereign debtor may be subject. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearage on their debt. The commitment of these third parties to make such disbursements may be conditioned on the sovereign debtor’s implementation of economic reforms or economic performance and the timely service of the debtor’s obligations. The sovereign debtor’s failure to meet these conditions may cause these third parties to cancel their commitments to provide funds to the sovereign debtor, which may further impair the debtor’s ability or willingness to timely service its debts. In certain instances, the Funds may invest in sovereign debt that is in default as to payments of principal or interest. In the event that the Funds hold non-performing sovereign debt, the Funds may incur additional expenses in connection with any restructuring of the issuer’s obligations or in otherwise enforcing their rights thereunder. | | | ||
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Brady Bonds
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| | Each Fund may invest a portion of its assets in certain sovereign debt obligations known as “Brady Bonds.” Brady Bonds are issued under the framework of the Brady Plan, an initiative announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure their outstanding external indebtedness. The Brady Plan contemplates, among other things, the debtor nation’s adoption of certain economic reforms and the exchange of commercial bank debt for newly issued bonds. In restructuring its external debt under the Brady Plan framework, a debtor nation negotiates with its existing bank lenders as well as the World Bank or the IMF. The World Bank or IMF supports the restructuring by providing funds pursuant to loan agreements or other arrangements that enable the debtor nation to collateralize the new Brady Bonds or to replenish reserves used to reduce outstanding bank debt. Under these loan agreements or other arrangements with the World Bank or IMF, debtor nations have been required to agree to implement certain | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | domestic monetary and fiscal reforms. The Brady Plan sets forth only general guiding principles for economic reform and debt reduction, emphasizing that solutions must be negotiated on a case-by-case basis between debtor nations and their creditors. | | | ||
| | | | Brady Bonds are often viewed as having three or four valuation components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the “residual risk”). In light of the residual risk of Brady Bonds and, among other factors, the history of defaults with respect to commercial bank loans by public and private entities of countries issuing Brady Bonds, investments in Brady Bonds can be viewed as speculative. | | | ||
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Stand-by Commitments
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| | Each Fund may purchase securities together with the right to resell them to the seller or a third party at an agreed-upon price or yield within specified periods prior to their maturity dates. Such a right to resell is commonly known as a stand-by commitment, and the aggregate price which a Fund pays for securities with a stand-by commitment may increase the cost, and thereby reduce the yield, of the security. The primary purpose of this practice is to permit the Fund to be as fully invested as practicable in municipal securities while preserving the necessary flexibility and liquidity to meet unanticipated redemptions. Stand-by commitments acquired by a Fund are valued at zero in determining the Fund’s NAV. Stand-by commitments involve certain expenses and risks, including the inability of the issuer of the commitment to pay for the securities at the time the commitment is exercised, non-marketability of the commitment, and differences between the maturity of the underlying security and the maturity of the commitment. | | | ||
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Strip Bonds
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| | Strip bonds are debt securities that are stripped of their interest (usually by a financial intermediary) after the securities are issued. The market value of these securities generally fluctuates more in response to changes in interest rates than interest-paying securities of comparable maturity. | | | ||
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Tax Credit Bonds (“Build America Bonds”)
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| | Build America Bonds are taxable bonds issued by federal and state local governments that allow a new direct federal payment subsidy. At the election of the state and local governments, the Treasury Department will make a direct payment to the state or local governmental issuer in an amount equal to 35% of the interest payment on the Build America Bonds. As a result, state and local governments will have lower net borrowing costs. This will also make Build America Bonds attractive to a broader group of investors that typically invest in traditional state and local tax-exempt bonds, where interest rates have historically been 20% lower than taxable interest rates. | | | ||
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Tender Option Bonds
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| | Tender option bonds are relatively long-term bonds that are coupled with the option to tender the securities to a bank, broker-dealer or other financial institution at periodic intervals and receive the face value of the bond. This investment structure is commonly used as a means of enhancing a security’s liquidity. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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Variable and Floating Rate Obligations
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| | Each Fund may purchase securities having a floating or variable rate of interest. These securities pay interest at rates that are adjusted periodically according to a specific formula, usually with reference to some interest rate index or market interest rate (the “underlying index”). The floating rate tends to decrease the security’s price sensitivity to changes in interest rates. These securities may carry demand features permitting the holder to demand payment of principal at any time or at specified intervals prior to maturity. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less than for fixed-rate obligations. | | | ||
| | | | In order to most effectively use these investments, a Fund’s subadviser must correctly assess probable movements in interest rates. This involves different skills than those used to select most other portfolio securities. If the Fund’s subadviser incorrectly forecasts such movements, the Fund could be adversely affected by the use of variable or floating rate obligations. | | | ||
| | | | The floating and variable rate obligations that the Funds may purchase include variable rate demand securities. Variable rate demand securities are variable rate securities that have demand features entitling the purchaser to resell the securities to the issuer at an amount approximately equal to amortized cost or the principal amount thereof plus accrued interest, which may be more or less than the price that the Fund paid for them. The interest rate on variable rate demand securities also varies either according to some objective standard, such as an index of short-term, tax-exempt rates, or according to rates set by or on behalf of the issuer. | | | ||
| | | | When a Fund purchases a floating or variable rate demand instrument, the Fund’s subadviser will monitor, on an ongoing basis, the ability of the issuer to pay principal and interest on demand. The Fund’s right to obtain payment at par on a demand instrument could be affected by events occurring between the date the Fund elects to demand payment and the date payment is due that may affect the ability of the issuer of the instrument to make payment when due, except when such demand instrument permits same day settlement. To facilitate settlement, these same day demand instruments may be held in book entry form at a bank other than the Funds’ custodian subject to a sub-custodian agreement between the bank and the Funds’ custodian. | | | ||
| | | | The floating and variable rate obligations that the Funds may purchase also include certificates of participation in such obligations purchased from banks. A certificate of participation gives the Fund an undivided interest in the underlying obligations in the proportion that the Fund’s interest bears to the total principal amount of the obligation. Certain certificates of participation may carry a demand feature that would permit the holder to tender them back to the issuer prior to maturity. | | | ||
| | | | The income received on certificates of participation in tax-exempt municipal obligations constitutes interest from tax-exempt obligations. | | | ||
| | | | Each Fund will limit its purchases of floating and variable rate obligations to those of the same quality as it otherwise is allowed to | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | purchase. Similar to fixed rate debt instruments, variable and floating rate instruments are subject to changes in value based on changes in prevailing market interest rates or changes in the issuer’s creditworthiness. | | | ||
| | | | A floating or variable rate instrument may be subject to a Fund’s percentage limitation on illiquid securities if there is no reliable trading market for the instrument or if the Fund may not demand payment of the principal amount within seven days. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Zero and Deferred Coupon Debt Securities
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| | Each Fund may invest in debt obligations that do not make any interest payments for a specified period of time prior to maturity (“deferred coupon” bonds) or until maturity (“zero coupon” bonds). The nonpayment of interest on a current basis may result from the bond’s having no stated interest rate, in which case the bond pays only principal at maturity and is normally initially issued at a discount from face value. Alternatively, the bond may provide for a stated rate of interest, but provide that such interest is not payable until maturity, in which case the bond may initially be issued at par. The value to the investor of these types of bonds is represented by the economic accretion either of the difference between the purchase price and the nominal principal amount (if no interest is stated to accrue) or of accrued, unpaid interest during the bond’s life or payment deferral period. | | | ||
| | | | Because deferred and zero coupon bonds do not make interest payments for a certain period of time, they are generally purchased by a Fund at a deep discount and their value fluctuates more in response to interest rate changes than does the value of debt obligations that make current interest payments. The degree of fluctuation with interest rate changes is greater when the deferred period is longer. Therefore, when a Fund invests in zero or deferred coupon bonds, there is a risk that the value of the Fund’s shares may decline more as a result of an increase in interest rates than would be the case if the Fund did not invest in such bonds. | | | ||
| | | | Even though zero and deferred coupon bonds may not pay current interest in cash, each Fund is required to accrue interest income on such investments and to distribute such amounts to shareholders. Thus, a Fund would not be able to purchase income-producing securities to the extent cash is used to pay such distributions, and, therefore, the Fund’s current income could be less than it otherwise would have been. Instead of using cash, the Fund might liquidate investments in order to satisfy these distribution requirements. | | | ||
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Derivative Instruments
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| | Each Fund may invest in various types of derivatives, which may at times result in significant derivative exposure. A derivative is a financial instrument whose performance is derived from the performance of another asset. Each Fund may invest in derivative instruments including, but not limited to: futures contracts, put options, call options, options on future contracts, options on foreign currencies, swaps, forward contracts, structured investments, and other equity-linked derivatives. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | Each Fund may use derivative instruments for hedging (to offset risks associated with an investment, currency exposure, or market conditions) or in pursuit of its investment objective(s) and policies (to seek to enhance returns). When a Fund invests in a derivative, the risks of loss of that derivative may be greater than the derivative’s cost. No Fund may use any derivative to gain exposure to an asset or class of assets that it would be prohibited by its investment restrictions from purchasing directly. In addition to other considerations, a Fund’s ability to use derivative instruments may be limited by tax considerations. (See “Dividends, Distributions and Taxes” in this SAI.) | | | ||
| | | | Investments in derivatives may subject a Fund to special risks in addition to normal market fluctuations and other risks inherent in investment in securities. For example, a percentage of the Fund’s assets may be segregated to cover its obligations with respect to the derivative investment, which may make it more difficult for the Fund’s subadviser to meet redemption requests or other short-term obligations. | | | ||
| | | | Investments in derivatives in general are also subject to market risks that may cause their prices to fluctuate over time. Investments in derivatives may not directly correlate with the price movements of the underlying instrument. As a result, the use of derivatives may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The use of derivatives may result in larger losses or smaller gains than otherwise would be the case. | | | ||
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Commodity Interests
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Certain of the derivative investment types permitted for the Funds may be considered commodity interests for purposes of the CEA and regulations approved by the CFTC. However, each Fund intends to limit the use of such investment types as required to qualify for exclusion or exemption from being considered a “commodity pool” or otherwise as a vehicle for trading in commodity interests under such regulations. As a result, except as otherwise noted below each Fund has filed a notice of exclusion under CFTC Regulation 4.5 or exemption under CFTC Regulation 4.13(a)(3).
The CFTC recently adopted amendments to its rules that may affect the Funds’ ability to continue to claim exclusion or exemption from regulation. If a Fund’s use of these techniques would cause the Fund to be considered a “commodity pool” under the CEA, then the Adviser would be subject to registration and regulation as the Fund’s commodity pool operator, and the Fund’s subadviser may be subject to registration and regulation as the Fund’s commodity trading advisor. A Fund may incur additional expense as a result of the CFTC’s registration and regulation obligations, and the Fund’s use of these techniques and other instruments may be limited or restricted.
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| | As of the date of this SAI, each Fund intends to limit the use of such investment types as required to qualify for exclusion from being considered a “commodity pool” or otherwise as a vehicle for trading in commodity interests under such regulations, and each Fund has filed a notice of exclusion under CFTC Regulation 4.5 or exemption under CFTC Regulation 4.13(a)(3). | |
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Credit-linked Notes
|
| | Credit-linked notes are derivative instruments used to transfer credit risk. The performance of the notes is linked to the performance of the underlying reference obligation or reference portfolio (“reference entities”). The notes are usually issued by a special purpose vehicle that sells credit protection through a credit default swap agreement in return for a premium and an obligation to pay the transaction sponsor should a reference entity experience a credit event, such as bankruptcy. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | The special purpose vehicle invests the proceeds from the notes to cover its contingent obligation. Revenue from the investments and the money received as premium are used to pay interest to note holders. The main risk of credit linked notes is the risk of default to the reference obligation of the credit default swap. Should a default occur, the special purpose vehicle would have to pay the transaction sponsor, subordinating payments to the note holders. Credit linked notes also may not be liquid and may be subject to currency and interest rate risks as well. | | | ||
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Equity-linked Derivatives
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| | Each Fund may invest in equity-linked derivative products, the performance of which is designed to correspond generally to the performance of a specified stock index or “basket” of stocks, or to a single stock. Investments in equity-linked derivatives involve the same risks associated with a direct investment in the types of securities such products are designed to track. There can be no assurance that the trading price of the equity-linked derivatives will equal the underlying value of the securities purchased to replicate a particular investment or that such basket will replicate the investment. | | | ||
| | | | Investments in equity-linked derivatives may constitute investments in other investment companies. (See “Mutual Fund Investing” in this section of the SAI for information regarding the implications of a Fund investing in other investment companies.) | | | ||
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Eurodollar Instruments
|
| | The Funds may invest in Eurodollar instruments. Eurodollar instruments are dollar-denominated certificates of deposit and time deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Eurodollar futures contracts enable purchasers to obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund might use Eurodollar instruments to hedge against changes in interest rates or to enhance returns. | | | ||
| | | | Eurodollar obligations are subject to the same risks that pertain to domestic issuers, most notably income risk (and, to a lesser extent, credit risk, market risk, and liquidity risk). Additionally, Eurodollar obligations are subject to certain sovereign risks. One such risk is the possibility that a sovereign country might prevent capital, in the form of dollars, from flowing across its borders. Other risks include adverse political and economic developments, the extent and quality of government regulation of financial markets and institutions, the imposition of foreign withholding taxes, and expropriation or nationalization of foreign issuers. However, Eurodollar obligations will undergo the same type of credit analysis as domestic issuers in which a Fund invests. | | | ||
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Foreign Currency Forward Contracts, Futures and Options
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| | Each Fund may engage in certain derivative foreign currency exchange and option transactions involving investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If a Fund’s subadviser’s predictions of movements in the direction of securities prices or currency exchange rates are inaccurate, the adverse consequences to the Fund may leave the Fund in a worse position than if it had not used such strategies. Risks inherent in the use of option and foreign currency forward and futures contracts | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | include: (1) dependence on the Fund’s subadviser’s ability to correctly predict movements in the direction of securities prices and currency exchange rates; (2) imperfect correlation between the price of options and futures contracts and movements in the prices of the securities or currencies being hedged; (3) the fact that the skills needed to use these strategies are different from those needed to select portfolio securities; (4) the possible absence of a liquid secondary market for any particular instrument at any time; and (5) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences. The Fund’s ability to enter into futures contracts is also limited by the requirements of the Code for qualification as a regulated investment company. (See the “Dividends, Distributions and Taxes” section of this SAI.) | | | ||
| | | | A Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates. In addition, a Fund may write covered put and call options on foreign currencies for the purpose of increasing its return. | | | ||
| | | | A Fund may enter into contracts to purchase or sell foreign currencies at a future date (“forward contracts”) and purchase and sell foreign currency futures contracts. For certain hedging purposes, the Fund may also purchase exchange-listed and over-the-counter put and call options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until the expiration of the option. A put option on a currency gives the Fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase the currency at the exercise price until the expiration of the option. | | | ||
| | | | When engaging in position hedging, a Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the values of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and on foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. (A Fund may also purchase or sell foreign currency on a spot basis, as discussed in “Foreign Currency Transactions” under “Foreign Investing” in this section of the SAI.) | | | ||
| | | | The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is also impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | contract. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. | | | ||
| | | | Hedging techniques do not eliminate fluctuations in the underlying prices of the securities which a Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they also tend to limit any potential gain which might result from the increase in value of such currency. | | | ||
| | | | A Fund may seek to increase its return or to offset some of the costs of hedging against fluctuations in currency exchange rates by writing covered put options and covered call options on foreign currencies. In that case, the Fund receives a premium from writing a put or call option, which increases the Fund’s current return if the option expires unexercised or is closed out at a net profit. A Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. | | | ||
| | | | A Fund’s currency hedging transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are then denominated. A Fund’s subadviser will engage in such “cross hedging” activities when it believes that such transactions provide significant hedging opportunities for the Fund. Cross hedging transactions by a Fund involve the risk of imperfect correlation between changes in the values of the currencies to which such transactions relate and changes in the value of the currency or other asset or liability which is the subject of the hedge. | | | ||
| | | | Foreign currency forward contracts, futures and options may be traded on foreign exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States; may not involve a clearing mechanism and related guarantees; and are subject to the risk of governmental actions affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii) delays in the relevant Fund’s ability to act upon economic events occurring in foreign markets during non-business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (v) lesser trading volume. | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | The types of derivative foreign currency exchange transactions most commonly employed by the Funds are discussed below, although each Fund is also permitted to engage in other similar transactions to the extent consistent with the Fund’s investment limitations and restrictions. | | | ||
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Foreign Currency Forward Contracts
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| | A foreign currency forward contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days (“term”) from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. | | | ||
| | | | A Fund will specifically designate on its accounting records any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, unencumbered and marked to market daily in an amount not less than the value of the Fund’s total assets committed to forward foreign currency exchange contracts entered into for the purchase of a foreign currency. If the value of the securities specifically designated declines, additional cash or securities will be added so that the specifically designated amount is not less than the amount of the Fund’s commitments with respect to such contracts. | | | ||
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Foreign Currency Futures Transactions
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| | Each Fund may use foreign currency futures contracts and options on such futures contracts. Through the purchase or sale of such contracts, a Fund may be able to achieve many of the same objectives attainable through the use of foreign currency forward contracts, but more effectively and possibly at a lower cost. | | | ||
| | | | Unlike forward foreign currency exchange contracts, foreign currency futures contracts and options on foreign currency futures contracts are standardized as to amount and delivery period and are traded on boards of trade and commodities exchanges. It is anticipated that such contracts may provide greater liquidity and lower cost than forward foreign currency exchange contracts. | | | ||
| | | | Purchasers and sellers of foreign currency futures contracts are subject to the same risks that apply to the buying and selling of futures generally. In addition, there are risks associated with foreign currency futures contracts similar to those associated with options on foreign currencies. (See “Foreign Currency Options” and “Futures Contracts and Options on Futures Contracts”, each in this sub-section of the SAI.) The Fund must accept or make delivery of the underlying foreign currency, through banking arrangements, in accordance with any U.S. or foreign restrictions or regulations regarding the maintenance of foreign banking arrangements by U.S. residents and may be required to pay any fees, taxes or charges associated with such delivery which are assessed in the issuing country. | | | ||
| | | | To the extent required to comply with SEC Release No. IC-10666, when entering into a futures contract or an option transaction, a Fund will specifically designate on its accounting records any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, unencumbered and marked to market daily equal to the net amount of the Fund’s obligation. For foreign currency futures | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | transactions, the prescribed amount will generally be the daily value of the futures contract, marked to market. | | | ||
| | | | Futures contracts are designed by boards of trade which are designated “contracts markets” by the CFTC. Futures contracts trade on contracts markets in a manner that is similar to the way a stock trades on a stock exchange and the boards of trade, through their clearing corporations, guarantee performance of the contracts. As of the date of this SAI, the Funds may invest in futures contracts under specified conditions without being regulated as commodity pools. However, under recently amended CFTC rules the Funds’ ability to maintain the exclusions/exemptions from the definition of commodity pool may be limited. (See “Commodity Interests” in this section of the SAI.) | | | ||
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Foreign Currency Options
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| | A foreign currency option provides the option buyer with the right to buy or sell a stated amount of foreign currency at the exercise price at a specified date or during the option period. A call option gives its owner the right, but not the obligation, to buy the currency, while a put option gives its owner the right, but not the obligation, to sell the currency. The option seller (writer) is obligated to fulfill the terms of the option sold if it is exercised. However, either seller or buyer may close its position during the option period for such options any time prior to expiration. | | | ||
| | | | A call rises in value if the underlying currency appreciates. Conversely, a put rises in value if the underlying currency depreciates. While purchasing a foreign currency option can protect a Fund against an adverse movement in the value of a foreign currency, it does not limit the gain which might result from a favorable movement in the value of such currency. For example, if the Fund were holding securities denominated in an appreciating foreign currency and had purchased a foreign currency put to hedge against a decline in the value of the currency, it would not have to exercise its put. Similarly, if the Fund had entered into a contract to purchase a security denominated in a foreign currency and had purchased a foreign currency call to hedge against a rise in the value of the currency but instead the currency had depreciated in value between the date of purchase and the settlement date, the Fund would not have to exercise its call but could acquire in the spot market the amount of foreign currency needed for settlement. | | | ||
| | | | The value of a foreign currency option depends upon the value of the underlying currency relative to the other referenced currency. As a result, the price of the option position may vary with changes in the value of either or both currencies and have no relationship to the investment merits of a foreign security, including foreign securities held in a “hedged” investment portfolio. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the use of foreign currency options, the Funds may be disadvantaged by having to deal in an odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. | | | ||
| | | | As in the case of other kinds of options, the use of foreign currency options constitutes only a partial hedge, and a Fund could be required | | | ||
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Investment Technique
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Description and Risks
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Fund-Specific Limitations
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| | | | to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on a foreign currency may not necessarily constitute an effective hedge against fluctuations in exchange rates and, in the event of rate movements adverse to the Fund’s position, the Fund may forfeit the entire amount of the premium plus related transaction costs. | | | ||
| | | | Options on foreign currencies written or purchased by a Fund may be traded on U.S. or foreign exchanges or over the counter. There is no systematic reporting of last sale information for foreign currencies traded over the counter or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information available is generally representative of very large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e., less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that the options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that are not reflected in the options market. | | | ||
| | | | For additional information about options transactions, see “Options” under “Derivative Investments” in this section of the SAI. | | | ||
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Foreign Currency Warrants
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| | Foreign currency warrants such as currency exchange warrants are warrants that entitle the holder to receive from the issuer an amount of cash (generally, for warrants issued in the United States, in U.S. dollars) that is calculated pursuant to a predetermined formula and based on the exchange rate between two specified currencies as of the exercise date of the warrant. Foreign currency warrants generally are exercisable upon their issuance and expire as of a specified date and time. | | | ||
| | | | Foreign currency warrants may be used to reduce the currency exchange risk assumed by purchasers of a security by, for example, providing for a supplemental payment in the event the U.S. dollar depreciates against the value of a major foreign currency such as the Japanese Yen or Euro. The formula used to determine the amount payable upon exercise of a foreign currency warrant may make the warrant worthless unless the applicable foreign currency exchange rate moves in a particular direction (e.g., unless the U.S. dollar appreciates or depreciates against the particular foreign currency to which the warrant is linked or indexed). | | | ||
| | | | Foreign currency warrants are severable from the debt obligations with which they may be offered, and may be listed on exchanges. Foreign currency warrants may be exercisable only in certain minimum amounts, and an investor wishing to exercise warrants who possesses less than the minimum number required for exercise may be required either to sell the warrants or to purchase additional warrants, thereby incurring additional transaction costs. Upon exercise of warrants, there may be a delay between the time the holder gives instructions to exercise and the time the exchange rate relating to exercise is determined, thereby affecting both the market and cash settlement | | | ||
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| | | | values of the warrants being exercised. The expiration date of the warrants may be accelerated if the warrants should be delisted from an exchange or if their trading should be suspended permanently, which would result in the loss of any remaining “time value” of the warrants (i.e., the difference between the current market value and the exercise value of the warrants), and, if the warrants were “out-of-the-money,” in a total loss of the purchase price of the warrants. | | | ||
| | | | Warrants are generally unsecured obligations of their issuers and are not standardized foreign currency options issued by the OCC. Unlike foreign currency options issued by OCC, the terms of foreign exchange warrants generally will not be amended in the event of governmental or regulatory actions affecting exchange rates or in the event of the imposition of other regulatory controls affecting the international currency markets. The initial public offering price of foreign currency warrants could be considerably in excess of the price that a commercial user of foreign currencies might pay in the interbank market for a comparable option involving larger amounts of foreign currencies. Foreign currency warrants are subject to significant foreign exchange risk, including risks arising from complex political or economic factors. | | | ||
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Performance Indexed Paper
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| | Performance indexed paper is commercial paper the yield of which is linked to certain currency exchange rate movements. The yield to the investor on performance indexed paper is established at maturity as a function of spot exchange rates between the designated currencies as of or about the time (generally, the index maturity two days prior to maturity). The yield to the investor will be within a range stipulated at the time of purchase of the obligation, generally with a guaranteed minimum rate of return that is below, and a potential maximum rate of return that is above, market yields on commercial paper, with both the minimum and maximum rates of return on the investment corresponding to the minimum and maximum values of the spot exchange rate two business days prior to maturity. | | | ||
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Principal Exchange Rate Linked Securities (“PERLS”)
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| | PERLS are debt obligations the principal on which is payable at maturity in an amount that may vary based on the exchange rate between the particular currencies at or about that time. The return on “standard” principal exchange rate linked securities is enhanced if the currency to which the security is linked appreciates against the base currency, and is adversely affected by increases in the exchange value of the base currency. “Reverse” PERLS are like the “standard” securities, except that their return is enhanced by increases in the value of the base currency and adversely impacted by increases in the value of other currency. Interest payments on the securities are generally made at rates that reflect the degree of currency risk assumed or given up by the purchaser of the notes (i.e., at relatively higher interest rates if the purchaser has assumed some of the currency exchange risk, or relatively lower interest rates if the issuer has assumed some of the currency exchange risk, based on the expectations of the current market). PERLS may in limited cases be subject to acceleration of maturity (generally, not without the consent of the holders of the securities), which may have an adverse impact on the value of the principal payment to be made at maturity. | | | ||
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Investment Technique
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Futures Contracts and Options on Futures Contracts
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| | Each Fund may use interest rate, foreign currency, dividend, volatility or index futures contracts. An interest rate, foreign currency, dividend, volatility or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument, foreign currency, dividend basket or the cash value of an index at a specified price and time. A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of an index might be a function of the value of certain specified securities, no physical delivery of these securities is made. A public market exists in futures contracts covering several indexes as well as a number of financial instruments and foreign currencies, and it is expected that other futures contracts will be developed and traded in the future. Interest rate and volatility futures contracts currently are traded in the United States primarily on the floors of the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Interest rate futures also are traded on foreign exchanges such as the London International Financial Futures Exchange and the Singapore International Monetary Exchange. Interest rate futures also are traded on foreign exchanges such as the London International Financial Futures Exchange and the Singapore International Monetary Exchange. Volatility futures also are traded on foreign exchanges such as Eurex. Dividend futures are also traded on foreign exchanges such as Eurex, NYSE Euronext Liffe, London Stock Exchange and the Singapore International Monetary Exchange. | | | ||
| | | | A Fund may purchase and write call and put options on futures. Futures options possess many of the same characteristics as options on securities and indexes discussed above. A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. | | | ||
| | | | Except as otherwise described in this SAI, the Funds will limit their use of futures contracts and futures options to hedging transactions and in an attempt to increase total return, in accordance with Federal regulations. The costs of, and possible losses incurred from, futures contracts and options thereon may reduce the Fund’s current income and involve a loss of principal. Any incremental return earned by the Fund resulting from these transactions would be expected to offset anticipated losses or a portion thereof. | | | ||
| | | | The Funds will only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade, or similar entity, or quoted on an automated quotation system. | | | ||
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Investment Technique
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| | | | When a purchase or sale of a futures contract is made by a Fund, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities (“initial margin”). The margin required for a futures contract is set by the exchange on which the contract is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. The Funds expect to earn interest income on their initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called “variation margin,” equal to the daily change in value of the futures contract. This process is known as “marking to market.” Variation margin does not represent a borrowing or loan by the Fund but is instead a settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing daily NAV, the Fund will mark to market its open futures positions. | | | ||
| | | | The Funds are also required to deposit and maintain margin with respect to put and call options on futures contracts written by them. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the relevant Fund. | | | ||
| | | | To the extent required to comply with SEC Release No. IC-10666, when entering into a futures contract or an option on a futures contract, a Fund will specifically designate on its accounting records any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, unencumbered and marked to market daily equal to the prescribed amount. Generally, for cash-settled futures contracts the prescribed amount is the net amount of the Fund’s obligation, and for non-cash-settled futures contracts the prescribed about is the notional value of the reference obligation. | | | ||
| | | | Futures contracts are designed by boards of trade which are designated “contracts markets” by the CFTC. Futures contracts trade on contracts markets in a manner that is similar to the way a stock trades on a stock exchange and the boards of trade, through their clearing corporations, guarantee performance of the contracts. A Fund’s ability to claim an exclusion or exemption from the definition of a commodity pool may be limited when the Fund invests in futures contracts. (See “Commodity Interests” in this SAI.) | | | ||
| | | | The requirements of the Code for qualification as a regulated investment company also may limit the extent to which a Fund may enter into futures, futures options or forward contracts. (See the “Dividends, Distributions and Taxes” section of this SAI.) | | | ||
| | | | Although some futures contracts call for making or taking delivery of the underlying securities, generally these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale | | | ||
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| | | | price, the Fund realizes a capital gain, or if it is more, the Fund realizes a capital loss. Conversely, if an offsetting sales price is more than the original purchase price, the Fund realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs must also be included in these calculations. | | | ||
| | | | Positions in futures contracts and related options may be closed out only on an exchange which provides a secondary market for such contracts or options. The Fund will enter into an option or futures position only if there appears to be a liquid secondary market. However, there can be no assurance that a liquid secondary market will exist for any particular option or futures contract at any specific time. Thus, it may not be possible to close out a futures or related option position. In the case of a futures position, in the event of adverse price movements the Fund would continue to be required to make daily margin payments. In this situation, if the Fund has insufficient cash to meet daily margin requirements it may have to sell portfolio securities to meet its margin obligations at a time when it may be disadvantageous to do so. In addition, the Fund may be required to take or make delivery of the securities underlying the futures contracts it holds. The inability to close out futures positions also could have an adverse impact on the Fund’s ability to hedge its portfolio effectively. | | | ||
| | | | There are several risks in connection with the use of futures contracts as a hedging device. While hedging can provide protection against an adverse movement in market prices, it can also limit a hedger’s opportunity to benefit fully from a favorable market movement. In addition, investing in futures contracts and options on futures contracts will cause the Fund to incur additional brokerage commissions and may cause an increase in the Fund’s portfolio turnover rate. | | | ||
| | | | The successful use of futures contracts and related options may also depend on the ability of the relevant Fund’s subadviser to forecast correctly the direction and extent of market movements, interest rates and other market factors within a given time frame. To the extent market prices remain stable during the period a futures contract or option is held by a Fund or such prices move in a direction opposite to that anticipated, the Fund may realize a loss on the transaction which is not offset by an increase in the value of its portfolio securities. Options and futures may also fail as a hedging technique in cases where the movements of the securities underlying the options and futures do not follow the price movements of the hedged portfolio securities. As a result, the Fund’s total return for the period may be less than if it had not engaged in the hedging transaction. The loss from investing in futures transactions is potentially unlimited. | | | ||
| | | | Utilization of futures contracts by a Fund involves the risk of imperfect correlation in movements in the price of futures contracts and movements in the price of the securities which are being hedged. If the price of the futures contract moves more or less than the price of the securities being hedged, the Fund will experience a gain or loss which will not be completely offset by movements in the price of the | | | ||
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| | | | securities. It is possible that, where a Fund has sold futures contracts to hedge its portfolio against a decline in the market, the market may advance and the value of securities held in the Fund’s portfolio may decline. If this occurred, the Fund would lose money on the futures contract and would also experience a decline in value in its portfolio securities. Where futures are purchased to hedge against a possible increase in the prices of securities before the Fund is able to invest its cash (or cash equivalents) in securities (or options) in an orderly fashion, it is possible that the market may decline; if the Fund then determines not to invest in securities (or options) at that time because of concern as to possible further market decline or for other reasons, the Fund will realize a loss on the futures that would not be offset by a reduction in the price of the securities purchased. | | | ||
| | | | The market prices of futures contracts may be affected if participants in the futures market elect to close out their contracts through offsetting transactions rather than to meet margin deposit requirements. In such case, distortions in the normal relationship between the cash and futures markets could result. Price distortions could also result if investors in futures contracts opt to make or take delivery of the underlying securities rather than to engage in closing transactions because such action would reduce the liquidity of the futures market. In addition, from the point of view of speculators, because the deposit requirements in the futures markets are less onerous than margin requirements in the cash market, increased participation by speculators in the futures market could cause temporary price distortions. Due to the possibility of price distortions in the futures market and because of the imperfect correlation between movements in the prices of securities and movements in the prices of futures contracts, a correct forecast of market trends may still not result in a successful hedging transaction. | | | ||
| | | | Compared to the purchase or sale of futures contracts, the purchase of put or call options on futures contracts involves less potential risk for the Fund because the maximum amount at risk is the premium paid for the options plus transaction costs. However, there may be circumstances when the purchase of an option on a futures contract would result in a loss to the Fund while the purchase or sale of the futures contract would not have resulted in a loss, such as when there is no movement in the price of the underlying securities. | | | ||
| | | | For additional information about options transactions, see “Options” under “Derivative Investments” in this section of the SAI. | | | ||
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Mortgage-Related and Other Asset-Backed Securities
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| | Each Fund may purchase mortgage-related and other asset-backed securities, which collectively are securities backed by mortgages, installment contracts, credit card receivables or other financial assets. Asset-backed securities represent interests in “pools” of assets in which payments of both interest and principal on the securities are made periodically, thus in effect “passing through” such payments made by the individual borrowers on the assets that underlie the securities, net of any fees paid to the issuer or guarantor of the securities. The average life of asset-backed securities varies with the maturities of the underlying instruments, and the average life of a mortgage-backed | | | ||
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| | | | instrument, in particular, is likely to be less than the original maturity of the mortgage pools underlying the securities as a result of mortgage prepayments, where applicable. For this and other reasons, an asset-backed security’s stated maturity may be different, and the security’s total return may be difficult to predict precisely. | | | ||
| | | | If an asset-backed security is purchased at a premium, a prepayment rate that is faster than expected will reduce yield to maturity, while a prepayment rate that is slower than expected will have the opposite effect of increasing yield to maturity. Conversely, if an asset-backed security is purchased at a discount, faster than expected prepayments will increase yield to maturity, while slower than expected prepayments will decrease yield to maturity. | | | ||
| | | | Prepayments of principal of mortgage-related securities by mortgagors or mortgage foreclosures affect the average life of the mortgage-related securities in the Fund’s portfolio. Mortgage prepayments are affected by the level of interest rates and other factors, including general economic conditions and the underlying location and age of the mortgage. In periods of rising interest rates, the prepayment rate tends to decrease, lengthening the average life of a pool of mortgage-related securities. The longer the remaining maturity of a security the greater the effect of interest rate changes will be. Changes in the ability of an issuer to make payments of interest and principal and in the market’s perception of its creditworthiness also affect the market value of that issuer’s debt securities. | | | ||
| | | | In periods of falling interest rates, the prepayment rate tends to increase, shortening the average life of a pool. Because prepayments of principal generally occur when interest rates are declining, it is likely that the Fund, to the extent that it retains the same percentage of debt securities, may have to reinvest the proceeds of prepayments at lower interest rates than those of its previous investments. If this occurs, that Fund’s yield will correspondingly decline. Thus, mortgage-related securities may have less potential for capital appreciation in periods of falling interest rates than other fixed income securities of comparable duration, although they may have a comparable risk of decline in market value in periods of rising interest rates. To the extent that the Fund purchases mortgage-related securities at a premium, unscheduled prepayments, which are made at par, result in a loss equal to any unamortized premium. | | | ||
| | | | Duration is one of the fundamental tools used by a Fund’s subadviser in managing interest rate risks including prepayment risks. Traditionally, a debt security’s “term to maturity” characterizes a security’s sensitivity to changes in interest rates. “Term to maturity,” however, measures only the time until a debt security provides its final payment, taking no account of prematurity payments. Most debt securities provide interest (“coupon”) payments in addition to a final (“par”) payment at maturity, and some securities have call provisions allowing the issuer to repay the instrument in full before maturity date, each of which affect the security’s response to interest rate changes. “Duration” therefore is generally considered a more precise measure of interest rate risk than “term to maturity.” Determining duration may | | | ||
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Investment Technique
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| | | | involve a subadviser’s estimates of future economic parameters, which may vary from actual future values. Generally, fixed income securities with longer effective durations are more responsive to interest rate fluctuations than those with shorter effective durations. For example, if interest rates rise by 1%, the value of securities having an effective duration of three years will generally decrease by approximately 3%. | | | ||
| | | | Descriptions of some of the different types of mortgage-related and other asset-backed securities most commonly acquired by the Funds are provided below. In addition to those shown, other types of mortgage-related and asset-backed investments are, or may become, available for investment by the Funds. | | | ||
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Collateralized Mortgage Obligations (“CMOs”)
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| | CMOs are hybrid instruments with characteristics of both mortgage-backed and mortgage pass-through securities. Interest and prepaid principal on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by entities such as GNMA, FHLMC, or FNMA, and their income streams. | | | ||
| | | | CMOs are typically structured in multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes typically receive principal only after the first class has been retired. An investor may be partially guarded against a sooner than desired return of principal because of the sequential payments. | | | ||
| | | | FHLMC CMOs are debt obligations of FHLMC issued in multiple classes having different maturity dates and are secured by the pledge of a pool of conventional mortgage loans purchased by FHLMC. The amount of principal payable on each monthly payment date is determined in accordance with FHLMC’s mandatory sinking fund schedule. Sinking fund payments in the CMOs are allocated to the retirement of the individual classes of bonds in the order of their stated maturities. Payments of principal on the mortgage loans in the collateral pool in excess of the amount of FHLMC’s minimum sinking fund obligation for any payment date are paid to the holders of the CMOs as additional sinking-fund payments. Because of the “pass-through” nature of all principal payments received on the collateral pool in excess of FHLMC’s minimum sinking fund requirement, the rate at which principal of the CMOs is actually repaid is likely to be such that each class of bonds will be retired in advance of its scheduled maturity date. If collection of principal (including prepayments) on the mortgage loans during any semiannual payment period is not sufficient to meet FHLMC’s minimum sinking fund obligation on the next sinking fund payment date, FHLMC agrees to make up the deficiency from its general funds. | | | ||
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CMO Residuals
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| | CMO residuals are derivative mortgage securities issued by agencies or instrumentalities of the U.S. Government or by private originators of, or investors in, mortgage loans. As described above, the cash flow generated by the mortgage assets underlying a series of CMOs is applied first to make required payments of principal and interest on the CMOs and second to pay the related administrative expenses of the issuer. The “residual” in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments. Each payment of such excess cash flow to a holder of the related CMO residual represents income and/or a return of capital. The amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics of the mortgage assets, the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses and, in particular, the prepayment experience on the mortgage assets. In addition, if a series of a CMO includes a class that bears interest at an adjustable rate, the yield to maturity on the related CMO residual will also be extremely sensitive to changes in the level of the index upon which interest rate adjustments are based. In certain circumstances a Fund may fail to recoup fully its initial investment in a CMO residual. | | | ||
| | | | CMO residuals are generally purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers. The CMO residual market currently may not have the liquidity of other more established securities trading in other markets. CMO residuals may be subject to certain restrictions on transferability, may be deemed illiquid and therefore subject to the Funds’ limitations on investment in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Mortgage Pass-through Securities
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| | Mortgage pass-through securities are interests in pools of mortgage loans, assembled and issued by various governmental, government-related, and private organizations. Unlike other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates, these securities provide a monthly payment consisting of both interest and principal payments. In effect, these payments are a “pass-through” of the monthly payments made by the individual borrowers on their residential or commercial mortgage loans, net of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs. “Modified pass-through” securities (such as securities issued by GNMA) entitle the holder to receive all interest and principal payments owed on the mortgage pool, net of certain fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment. | | | ||
| | | | The principal governmental guarantor of U.S. mortgage-related securities is GNMA. GNMA is authorized to guarantee, with the full faith and credit of the United States Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of Federal Housing | | | ||
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| | | | Administration insured or Veterans Administration guaranteed mortgages. Government-related guarantors whose obligations are not backed by the full faith and credit of the United States Government include FNMA and FHLMC. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. FHLMC issues Participation Certificates that represent interests in conventional mortgages from FHLMC’s national portfolio. FNMA and FHLMC guarantee the timely payment of interest and ultimate collection of principal on securities they issue, but the securities they issue are neither issued nor guaranteed by the United States Government. | | | ||
| | | | Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers also create pass-through pools of conventional residential mortgage loans. Such issuers may, in addition, be the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government or agency guarantees of payments for such securities. However, timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets a Fund’s investment quality standards. There can be no assurance that the private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. A Fund may buy mortgage-related securities without insurance or guarantees if, through an examination of the loan experience and practices of the originator/servicers and poolers, the Fund’s subadviser determines that the securities meet the Fund’s quality standards. Securities issued by certain private organizations may not be readily marketable and may therefore be subject to the Funds’ limitations on investments in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
| | | | Mortgage-backed securities that are issued or guaranteed by the U.S. Government, its agencies or instrumentalities, are not subject to the Funds’ industry concentration restrictions set forth in the “Investment Restrictions” section of this SAI by virtue of the exclusion from the test available to all U.S. Government securities. The Funds will take the position that privately-issued, mortgage-related securities, and other asset-backed securities, do not represent interests in any particular “industry” or group of industries. The assets underlying such securities may be represented by a portfolio of first lien residential mortgages (including both whole mortgage loans and mortgage participation interests) or portfolios of mortgage pass-through securities issued or | | | ||
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| | | | guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn be insured or guaranteed by the Federal Housing Administration or the Department of Veterans Affairs. In the case of private issue mortgage-related securities whose underlying assets are neither U.S. Government securities nor U.S. Government-insured mortgages, to the extent that real properties securing such assets may be located in the same geographical region, the security may be subject to a greater risk of default than other comparable securities in the event of adverse economic, political or business developments that may affect such region and, ultimately, the ability of residential homeowners to make payments of principal and interest on the underlying mortgages. | | | ||
| | | | It is possible that the availability and the marketability (that is, liquidity) of the securities discussed in this section could be adversely affected by the actions of the U.S. Government to tighten the availability of its credit. On September 7, 2008, the FHFA, an agency of the U.S. Government, placed FNMA and FHLMC into conservatorship, a statutory process with the objective of returning the entities to normal business operations. FHFA will act as the conservator to operate FNMA and FHLMC until they are stabilized. The conservatorship is still in effect as of the date of this SAI and has no specified termination date. There can be no assurance as to when or how the conservatorship will be terminated or whether FNMA or FHLMC will continue to exist following the conservatorship or what their respective business structures will be during or following the conservatorship. FHFA, as conservator, has the power to repudiate any contract entered into by FNMA or FHLMC prior to its appointment if it determines that performance of the contract is burdensome and repudiation of the contract promotes the orderly administration of FNMA’s or FHLMC’s affairs. Furthermore, FHFA has the right to transfer or sell any asset or liability of FNMA or FHLMC without any approval, assignment or consent. If FHFA were to transfer any such guarantee obligation to another party, holders of FNMA or FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guarantee obligation and would be exposed to the credit risk of that party. | | | ||
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Other Asset-Backed Securities
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| | Through trusts and other special purpose entities, various types of securities based on financial assets other than mortgage loans are increasingly available, in both pass-through structures similar to mortgage pass-through securities described above and in other structures more like CMOs. As with mortgage-related securities, these asset-backed securities are often backed by a pool of financial assets representing the obligations of a number of different parties. They often include credit-enhancement features similar to mortgage-related securities. | | | ||
| | | | Financial assets on which these securities are based include automobile receivables; credit card receivables; loans to finance boats, recreational vehicles, and mobile homes; computer, copier, railcar, and medical equipment leases; and trade, healthcare, and franchise receivables. In general, the obligations supporting these asset-backed securities are of shorter maturities than mortgage loans and are less likely to experience | | | ||
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| | | | substantial prepayments. However, obligations such as credit card receivables are generally unsecured and the obligors are often entitled to protection under a number of consumer credit laws granting, among other things, rights to set off certain amounts owed on the credit cards, thus reducing the balance due. Other obligations that are secured, such as automobile receivables, may present issuers with difficulties in perfecting and executing on the security interests, particularly where the issuer allows the servicers of the receivables to retain possession of the underlying obligations, thus increasing the risk that recoveries on defaulted obligations may not be adequate to support payments on the securities. | | | ||
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Stripped Mortgage-backed Securities (“SMBS”)
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| | SMBS are derivative multi-class mortgage securities. They may be issued by agencies or instrumentalities of the U.S. Government, or by private originators of, or investors in, mortgage loans. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of SMBS will have one class receiving some of the interest and most of the principal from the mortgage assets, while the other class will receive most of the interest and the remainder of the principal. In the most extreme case, one class will receive all of the interest (the interest-only or “IO” class), while the other class will receive all of the principal (the principal-only or “PO” class). The yield to maturity on an IO class security is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund’s yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to recoup fully its initial investment in these securities even if the security is in one of the highest rating categories. The market value of the PO class generally is unusually volatile in response to changes in interest rates. | | | ||
| | | | Although SMBS are purchased and sold by institutional investors through several investment banking firms acting as brokers or dealers, these securities were only recently developed. As a result, established trading markets have not yet developed and, accordingly, these securities may be deemed illiquid and therefore subject to the Funds’ limitations on investment in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
| | | | Each Fund may invest in other mortgage-related securities with features similar to those described above, to the extent consistent with the relevant Fund’s investment objectives and policies. | | | ||
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Options
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| | Each Fund may purchase or sell put and call options on securities, indices and other financial instruments. Options may relate to particular securities, foreign and domestic securities indices, financial instruments, volatility, credit default, foreign currencies or the yield differential between two securities. Such options may or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the OCC. | | | ||
| | | | A call option for a particular security gives the purchaser of the option the right to buy, and a writer the obligation to sell, the underlying | | | ||
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| | | | security at the stated exercise price before the expiration of the option, regardless of the market price of the security. A premium is paid to the writer by the purchaser in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell and a writer the obligation to buy the security at the stated exercise price before the expiration date of the option, regardless of the market price of the security. | | | ||
| | | | To the extent required to comply with SEC Release No. IC-10666, options written by a Fund will be covered and will remain covered as long as the Fund is obligated as a writer. A call option is “covered” if the Fund owns the underlying security or its equivalent covered by the call or has an absolute and immediate right to acquire that security without additional cash consideration (or for additional cash consideration if such cash is segregated) upon conversion or exchange of other securities held in its portfolio. A call option is also covered if the Fund holds on a share-for-share or equal principal amount basis a call on the same security as the call written where the exercise price of the call held is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if appropriate liquid assets representing the difference are segregated by the Fund. A put option is “covered” if the Fund maintains appropriate liquid securities with a value equal to the exercise price, or owns on a share-for-share or equal principal amount basis a put on the same security as the put written where the exercise price of the put held is equal to or greater than the exercise price of the put written. | | | ||
| | | | A Fund’s obligation to sell an instrument subject to a covered call option written by it, or to purchase an instrument subject to a secured put option written by it, may be terminated before the expiration of the option by the Fund’s execution of a closing purchase transaction. This means that a Fund buys an option of the same series (i.e., same underlying instrument, exercise price and expiration date) as the option previously written. Such a purchase does not result in the ownership of an option. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying instrument from being called, to permit the sale of the underlying instrument or to permit the writing of a new option containing different terms on such underlying instrument. The cost of such a closing purchase plus related transaction costs may be greater than the premium received upon the original option, in which event the Fund will experience a loss. There is no assurance that a liquid secondary market will exist for any particular option. A Fund that has written an option and is unable to effect a closing purchase transaction will not be able to sell the underlying instrument (in the case of a covered call option) or liquidate the segregated assets (in the case of a secured put option) until the option expires or the optioned instrument is delivered upon exercise. The Fund will be subject to the risk of market decline or appreciation in the instrument during such period. | | | ||
| | | | To the extent required to comply with SEC Release No. IC-10666, when entering into an option transaction, a Fund will specifically designate on its accounting records any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, | | | ||
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| | | | unencumbered and marked to market daily equal to the prescribed amount. For options transactions, the prescribed amount will generally be the market value of the underlying instrument but will not be less than the exercise price. | | | ||
| | | | Options purchased are recorded as an asset and written options are recorded as liabilities to the extent of premiums paid or received. The amount of this asset or liability will be subsequently marked-to-market to reflect the current value of the option purchased or written. The current value of the traded option is the last sale price or, in the absence of a sale, the current bid price. If an option purchased by a Fund expires unexercised, the Fund will realize a loss equal to the premium paid. If a Fund enters into a closing sale transaction on an option purchased by it, the Fund will realize a gain if the premium received by the Fund on the closing transaction is more than the premium paid to purchase the option, or a loss if it is less. If an option written by a Fund expires on the stipulated expiration date or if a Fund enters into a closing purchase transaction, it will realize a gain (or loss if the cost of a closing purchase transaction exceeds the net premium received when the option is sold), and the liability related to such option will be eliminated. If an option written by a Fund is exercised, the proceeds of the sale will be increased by the net premium originally received and the Fund will realize a gain or loss. | | | ||
| | | | Options trading is a highly specialized activity that entails more complex and potentially greater than ordinary investment risk. Options may be more volatile than the underlying instruments and, therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves. | | | ||
| | | | There are several other risks associated with options. For example, there are significant differences among the securities, currency, volatility, credit default and options markets that could result in an imperfect correlation among these markets, causing a given transaction not to achieve its objectives. In addition, a liquid secondary market for particular options, whether traded over-the-counter or on an exchange, may be absent for reasons that include the following: there may be insufficient trading interest in certain options; restrictions may be imposed by an exchange on opening transactions or closing transactions or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options or underlying securities or currencies; unusual or unforeseen circumstances may interrupt normal operations on an exchange; the facilities of an exchange or the OCC may not at all times be adequate to handle current trading value; or one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options that had been issued by the OCC as a result of trades on that exchange would continue to be exercisable in accordance with their terms. | | | ||
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| | | | The staff of the SEC currently takes the position that options not traded on registered domestic securities exchanges and the assets used to cover the amount of the Fund’s obligation pursuant to such options are illiquid, and are therefore subject to each Fund’s limitation on investments in illiquid securities. However, for options written with “primary dealers” in U.S. Government securities pursuant to an agreement requiring a closing transaction at the formula price, the amount considered to be illiquid may be calculated by reference to a formula price. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Options on Indexes and “Yield Curve” Options
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| | Each Fund may enter into options on indexes or options on the “spread,” or yield differential, between two fixed income securities, in transactions referred to as “yield curve” options. Options on indexes and yield curve options provide the holder with the right to make or receive a cash settlement upon exercise of the option. With respect to options on indexes, the amount of the settlement will equal the difference between the closing price of the index at the time of exercise and the exercise price of the option expressed in dollars, times a specified multiple. With respect to yield curve options, the amount of the settlement will equal the difference between the yields of designated securities. | | | ||
| | | | With respect to yield curve options, a call or put option is covered if a Fund holds another call or put, respectively, on the spread between the same two securities and maintains in a segregated account liquid assets sufficient to cover the Fund’s net liability under the two options. Therefore, the Fund’s liability for such a covered option is generally limited to the difference between the amount of the Fund’s liability under the option it wrote less the value of the option it holds. A Fund may also cover yield curve options in such other manner as may be in accordance with the requirements of the counterparty with which the option is traded and applicable laws and regulations. | | | ||
| | | | The trading of these types of options is subject to all of the risks associated with the trading of other types of options. In addition, however, yield curve options present risk of loss even if the yield of one of the underlying securities remains constant, if the spread moves in a direction or to an extent which was not anticipated. | | | ||
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Reset Options
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| | In certain instances, a Fund may purchase or write options on U.S. Treasury securities, which provide for periodic adjustment of the strike price and may also provide for the periodic adjustment of the premium during the term of each such option. Like other types of options, these transactions, which may be referred to as “reset” options or “adjustable strike” options grant the purchaser the right to purchase (in the case of a call) or sell (in the case of a put), a specified type of U.S. Treasury security at any time up to a stated expiration date (or, in certain instances, on such date). In contrast to other types of options, however, the price at which the underlying security may be purchased or sold under a “reset” option is determined at various intervals during the term of the option, and such price fluctuates from interval to interval based on changes in the market value of the underlying security. As a result, the strike price of a “reset” option, at the time of | | | ||
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| | | | exercise, may be less advantageous than if the strike price had been fixed at the initiation of the option. In addition, the premium paid for the purchase of the option may be determined at the termination, rather than the initiation, of the option. If the premium for a reset option written by a Fund is paid at termination, the Fund assumes the risk that (i) the premium may be less than the premium which would otherwise have been received at the initiation of the option because of such factors as the volatility in yield of the underlying Treasury security over the term of the option and adjustments made to the strike price of the option, and (ii) the option purchaser may default on its obligation to pay the premium at the termination of the option. Conversely, where a Fund purchases a reset option, it could be required to pay a higher premium than would have been the case at the initiation of the option. | | | ||
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Swaptions
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| | A Fund may enter into swaption contracts, which give the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. Over-the-counter swaptions, although providing greater flexibility, may involve greater credit risk than exchange-traded options as they are not backed by the clearing organization of the exchanges where they are traded, and as such, there is a risk that the seller will not settle as agreed. A Fund’s financial liability associated with swaptions is linked to the marked-to-market value of the notional underlying investments. Purchased swaption contracts are exposed to a maximum loss equal to the price paid for the option/swaption (the premium) and no further liability. Written swaptions, however, give the right of potential exercise to a third party, and the maximum loss to the Fund in the case of an uncovered swaption is unlimited. | | | ||
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Swap Agreements
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| | Each Fund may enter into swap agreements on, among other things, interest rates, indices, securities and currency exchange rates. A Fund’s subadviser may use swaps in an attempt to obtain for the Fund a particular desired return at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods typically ranging from a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a “basket” of securities representing a particular index. The “notional amount” of the swap agreement is only a fictive basis on which to calculate the obligations the parties to a swap agreement have agreed to exchange. A Fund’s obligations (or rights) under a swap agreement will generally be equal only to the amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”). A Fund’s obligations under a swap agreement will be accrued daily on the Fund’s accounting records (offset against any amounts owing to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty | | | ||
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| | | | will be covered by specifically designating on the accounting records of the Fund liquid assets to avoid leveraging of the Fund’s portfolio. | | | ||
| | | | Because swap agreements are two-party contracts and may have terms of greater than seven days, they may be considered to be illiquid and therefore subject to the Funds’ limitations on investment in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. A Fund’s subadviser will cause the Fund to enter into swap agreements only with counterparties that would be eligible for consideration as repurchase agreement counterparties under the Funds’ repurchase agreement guidelines. (See “Repurchase Agreements” in this section of the SAI.) Certain restrictions imposed on the Funds by the Code may limit the Funds’ ability to use swap agreements. (See the “Dividends, Distributions and Taxes” section of this SAI.) The swaps market is a relatively new market and is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect a Fund’s ability to terminate existing swap agreements or to realize amounts to be received under such agreements. | | | ||
| | | | Certain swap agreements are exempt from most provisions of the CEA and, therefore, are not regulated as futures or commodity option transactions under the CEA, pursuant to regulations of the CFTC. To qualify for this exemption, a swap agreement must be entered into by eligible participants and must meet certain conditions (each pursuant to the CEA and regulations of the CFTC). However, recent CFTC rule amendments dictate that certain swap agreements be considered commodity interests for purposes of the CEA. (See “Commodity Interests” in this section of the SAI for additional information regarding the implications of investments being considered commodity interests under the CEA.) | | | ||
| | | | Recently, the SEC and the CFTC have developed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act to create a new, comprehensive regulatory framework for swap transactions. Under the new regulations, certain swap transactions will be required to be executed on a regulated trading platform and cleared through a derivatives clearing organization. Additionally, the new regulations impose other requirements on the parties entering into swap transactions, including requirements relating to posting margin, and reporting and documenting swap transactions. A Fund engaging in swap transactions may incur additional expenses as a result of these new regulatory requirements. The Adviser is continuing to monitor the implementation of the new regulations and to assess their impact on the Funds. | | | ||
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Credit Default Swap Agreements
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| | Each Fund may enter into credit default swap agreements. A credit default swap is a bilateral financial contract in which one party (the protection buyer) pays a periodic fee in return for a contingent payment by the protection seller following a credit event of a reference issuer. The protection buyer must either sell particular obligations | | | ||
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| | | | issued by the reference issuer for its par value (or some other designated reference or strike price) when a credit event occurs or receive a cash settlement based on the difference between the market price and such reference price. A credit event is commonly defined as bankruptcy, insolvency, receivership, material adverse restructuring of debt, or failure to meet payment obligations when due. A Fund may be either the buyer or seller in the transaction. If a Fund is a buyer and no event of default occurs, the Fund loses its investment and recovers nothing; however, if an event of default occurs, the Fund receives full notional value for a reference obligation that may have little or no value. As a seller, a Fund receives a periodic fee throughout the term of the contract, provided there is no default event; if an event of default occurs, the Fund must pay the buyer the full notional value of the reference obligation. The value of the reference obligation received by the Fund as a seller, coupled with the periodic payments previously received, may be less than the full notional value the Fund pays to the buyer, resulting in a loss of value to the Fund. | | | ||
| | | | As with other swaps, when a Fund enters into a credit default swap agreement, to the extent required by applicable law and regulation the Fund will specifically designate on its accounting records any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, unencumbered and marked to market daily, equal to the Fund’s net exposure under the swap (the “Segregated Assets”). Generally, the minimum cover amount for a swap agreement is the amount owed by the Fund, if any, on a daily mark-to-market basis. With respect to swap contracts that provide for the netting of payments, the net amount of the excess, if any, of the Fund’s obligations over its entitlements with respect to each swap contract will be accrued on a daily basis and an amount of Segregated Assets having an aggregate market value at least equal to the accrued excess will be maintained to cover the transactions in accordance with SEC positions. With respect to swap contracts that do not provide for the netting of payments by the counterparties, the full notional amount for which the Fund is obligated under the swap contract with respect to each swap contract will be accrued on a daily basis and an amount of Segregated Assets having an aggregate market value at least equal to the accrued full notional value will be maintained to cover the transactions in accordance with SEC positions. When the Fund sells protection on an individual credit default swap, upon a credit event, the Fund may be obligated to pay the cash equivalent value of the asset. Therefore, the cover amount will be the notional value of the underlying credit. With regard to selling protection on an index (CDX), as a practical matter, the Fund would not be required to pay the full notional amount of the index; therefore, only the amount owed by the Fund, if any, on a daily mark-to-market basis is required as cover. | | | ||
| | | | Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risks. A Fund will enter into swap agreements only with counterparties deemed creditworthy by the Fund’s subadviser. | | | ||
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Dividend Swap Agreements
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| | A dividend swap agreement is a financial instrument where two parties contract to exchange a set of future cash flows at set dates in the future. One party agrees to pay the other the future dividend flow on a stock or basket of stocks in an index, in return for which the other party gives the first call options. Dividend swaps generally are traded over the counter rather than on an exchange. | | | ||
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Inflation Swap Agreements
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| | Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (e.g., the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), while the other pays a compounded fixed rate. Inflation swap agreements may be used by a Fund to hedge the inflation risk associated with non-inflation indexed investments, thereby creating “synthetic” inflation-indexed investments. One factor that may lead to changes in the values of inflation swap agreements is a change in real interest rates, which are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, which may lead to a decrease in value of an inflation swap agreement. | | | ||
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Total Return Swap Agreements
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| | “Total return swap” is the generic name for any non-traditional swap where one party agrees to pay the other the “total return” of a defined underlying asset, usually in return for receiving a stream of cash flows based upon an agreed rate. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined portfolios of loans and mortgages. A total return swap is a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, which is often LIBOR, is spread to reflect the non-balance sheet nature of the product. Total return swaps can be designed with any underlying asset agreed between the two parties. No notional amounts are exchanged with total return swaps. | | | ||
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Variance and Correlation Swap Agreements
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| | Variance swap agreements are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on an underlying asset or index. “Actual variance” as used here is defined as the sum of the square of the returns on the reference asset or index (which in effect is a measure of its “volatility”) over the length of the contract term. In other words, the parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility. Correlation swap agreements are contracts in which two parties agree to exchange cash payments based on the differences between the stated and the actual correlation realized on the underlying equity securities within a given equity index. “Correlation” as used here is defined as the weighted average of the correlations between the daily returns of each pair of securities within a given equity index. If two assets are said to be closely correlated, it means that their daily returns vary in similar proportions or along similar trajectories. A Fund may enter into variance or correlation swaps in an attempt to hedge equity market risk or adjust exposure to the equity markets. | | | ||
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Equity Securities
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| | The Funds may invest in equity securities. Equity securities include common stocks, preferred stocks and preference stocks; securities such as bonds, warrants or rights that are convertible into stocks; and depositary receipts for those securities. | | | ||
| | | | Common stockholders are the owners of the company issuing the stock and, accordingly, usually have the right to vote on various corporate governance matters such as mergers. They are not creditors of the company, but rather, in the event of liquidation of the company, would be entitled to their pro rata shares of the company’s assets after creditors (including fixed income security holders) and, if applicable, preferred stockholders are paid. Preferred stock is a class of stock having a preference over common stock as to dividends or upon liquidation. A preferred stockholder is a shareholder in the company and not a creditor of the company as is a holder of the company’s fixed income securities. Dividends paid to common and preferred stockholders are distributions of the earnings or other surplus of the company and not interest payments, which are expenses of the company. Equity securities owned by the Fund may be traded in the over-the-counter market or on a securities exchange and may not be traded every day or in the volume typical of securities traded on a major U.S. national securities exchange. As a result, disposition by the Fund of a portfolio security to meet redemptions by shareholders or otherwise may require the Fund to sell the security at less than the reported value of the security, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time. The market value of all securities, including equity securities, is based upon the market’s perception of value and not necessarily the book value of an issuer or other objective measure of a company’s worth. | | | ||
| | | | Stock values may fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, common stocks have provided greater long-term returns and have entailed greater short-term risks than other types of securities. Smaller or newer issuers may be more likely to realize more substantial growth or suffer more significant losses. Investments in these companies can be both more volatile and more speculative. Fluctuations in the value of equity securities in which a Fund invests will cause the NAV of the Fund to fluctuate. | | | ||
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Initial Public Offerings
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| | A Fund may invest in a company’s securities at the time of a company’s initial public offering (“IPO”). Companies involved in IPOs are often smaller and have a limited operating history, which involves a greater risk that the value of their securities will be impaired following the IPO. In addition, market psychology prevailing at the time of an IPO can have a substantial and unpredictable effect on the price of an IPO security, causing the price of a company’s securities to be particularly volatile at the time of its IPO and for a period thereafter. As a result, a Fund’s Adviser or subadviser might decide to sell an IPO security more quickly than it would otherwise, which may result in significant gains or losses to the Fund. | | | ||
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Securities of Small and Mid Capitalization Companies
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| | While small and medium-sized issuers in which a Fund invests may offer greater opportunities for capital appreciation than larger market capitalization issuers, investments in such companies may involve greater risks and thus may be considered speculative. For example, smaller companies may have limited product lines, markets or financial resources, or they may be dependent on a limited management group. In addition, many small and mid-capitalization company stocks trade less frequently and in smaller volume, and may be subject to more abrupt or erratic price movements, than stocks of larger companies. The securities of small and mid-capitalization companies may also be more sensitive to market changes than the securities of larger companies. When a Fund invests in small or mid-capitalization companies, these factors may result in above-average fluctuations in the NAV of the Fund’s shares. Therefore, a Fund investing in such securities should be considered as a long-term investment and not as a vehicle for seeking short-term profits. Similarly, an investment in a Fund solely investing in such securities should not be considered a complete investment program. | | | ||
| | | | Market capitalizations of companies in which the Funds invest are determined at the time of purchase. | | | ||
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Unseasoned Companies
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| | As a matter of operating policy, each Fund may invest to a limited extent in securities of unseasoned companies and new issues. The Adviser regards a company as unseasoned when, for example, it is relatively new to, or not yet well established in, its primary line of business. Such companies generally are smaller and younger than companies whose shares are traded on the major stock exchanges. Accordingly, their shares are often traded over-the-counter and their share prices may be more volatile than those of larger, exchange-listed companies. Generally a Fund will not invest more than 5% of its total assets in securities of any one company with a record of fewer than three years’ continuous operation (including that of predecessors). | | | ||
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Foreign Investing
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| | The Funds may invest in a broad range of securities of foreign issuers, including equity, debt and convertible securities and foreign government securities. The Funds may purchase the securities of issuers from various countries, including countries commonly referred to as “emerging markets.” The Funds may also invest in domestic securities denominated in foreign currencies. | | | ||
| | | | Investing in the securities of foreign companies involves special risks and considerations not typically associated with investing in U.S. companies. These include differences in accounting, auditing and financial reporting standards, generally higher commission rates on foreign portfolio transactions, the possibility of expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which could affect U.S. investments in foreign countries, and potential restrictions on the flow of international capital. Foreign issuers may become subject to sanctions imposed by the United States or another country, which could result in the immediate freeze of the foreign issuers’ assets or securities. The imposition of such sanctions could impair the market value of the securities of such foreign issuers and limit a Fund’s ability | | | ||
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| | | | to buy, sell, receive or deliver the securities. Additionally, dividends payable on foreign securities may be subject to foreign taxes withheld prior to distribution. Foreign securities often trade with less frequency and volume than domestic securities and therefore may exhibit greater price volatility. Changes in foreign exchange rates will affect the value of those securities which are denominated or quoted in currencies other than the U.S. dollar. Many of the foreign securities held by a Fund will not be registered with, nor will the issuers thereof be subject to the reporting requirements of, the SEC. Accordingly, there may be less publicly available information about the securities and about the foreign company or government issuing them than is available about a domestic company or government entity. Moreover, individual foreign economies may differ favorably or unfavorably from the United States economy in such respects as growth of Gross National Product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions. Finally, the Funds may encounter difficulty in obtaining and enforcing judgments against issuers of foreign securities. | | | ||
| | | | Securities of U.S. issuers denominated in foreign currencies may be less liquid and their prices more volatile than securities issued by domestic issuers and denominated in U.S. dollars. In addition, investing in securities denominated in foreign currencies often entails costs not associated with investment in U.S. dollar-denominated securities of U.S. issuers, such as the cost of converting foreign currency to U.S. dollars, higher brokerage commissions, custodial expenses and other fees. Non-U.S. dollar denominated securities may be subject to certain withholding and other taxes of the relevant jurisdiction, which may reduce the yield on the securities to the Funds and which may not be recoverable by the Funds or their investors. | | | ||
| | | | The Trust may use an eligible foreign custodian in connection with its purchases of foreign securities and may maintain cash and cash equivalents in the care of a foreign custodian. The amount of cash or cash equivalents maintained in the care of eligible foreign custodians will be limited to an amount reasonably necessary to effect the Trust’s foreign securities transactions. The use of a foreign custodian invokes considerations which are not ordinarily associated with domestic custodians. These considerations include the possibility of expropriations, restricted access to books and records of the foreign custodian, inability to recover assets that are lost while under the control of the foreign custodian, and the impact of political, social or diplomatic developments. | | | ||
| | | | Settlement procedures relating to the Funds’ investments in foreign securities and to the Funds’ foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Funds’ domestic investments. For example, settlement of transactions involving foreign securities or foreign currency may occur within a foreign country, and a Fund may be required to accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may be required to pay any fees, taxes or charges associated with such delivery. Such investments may also involve the | | | ||
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| | | | risk that an entity involved in the settlement may not meet its obligations. Settlement procedures in many foreign countries are less established than those in the United States, and some foreign country settlement periods can be significantly longer than those in the United States. | | | ||
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Depositary Receipts
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| | Each Fund permitted to hold foreign securities may also hold ADRs, ADSs, GDRs and EDRs. ADRs and ADSs typically are issued by an American bank or trust company and evidence ownership of underlying securities issued by a foreign corporation. EDRs, which are sometimes referred to as CDRs, are issued in Europe typically by foreign banks and trust companies and evidence ownership of either foreign or domestic securities. GDRs are similar to EDRs and are designed for use in several international financial markets. Generally, ADRs and ADSs in registered form are designed for use in United States securities markets and EDRs in bearer form are designed for use in European securities markets. For purposes of a Fund’s investment policies, its investments in ADRs, ADSs, GDRs and EDRs will be deemed to be investments in the underlying foreign securities. | | | ||
| | | | Depositary Receipts may be issued pursuant to sponsored or unsponsored programs. In sponsored programs, an issuer has made arrangements to have its securities traded in the form of Depositary Receipts. In unsponsored programs, the issuer may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, in some cases it may be easier to obtain financial information from an issuer that has participated in the creation of a sponsored program. Accordingly, there may be less information available regarding issuers of securities underlying unsponsored programs and there may not be a correlation between such information and the market value of the Depositary Receipts. For purposes of the Fund’s investment policies, investments in Depositary Receipts will be deemed to be investments in the underlying securities. Thus, a Depositary Receipt representing ownership of common stock will be treated as common stock. | | | ||
| | | | Depositary Receipts are generally subject to the same sort of risks as direct investments in a foreign country, such as currency risk, political and economic risk, and market risk, because their values generally depend on the performance of a foreign security denominated in its home currency. (The risks of foreign investing are addressed above in this section of the SAI under the heading “Foreign Investing.”) In addition to risks associated with the underlying portfolio of securities, receipt holders also must consider credit standings of the custodians and broker/dealer sponsors. The receipts are not registered with the SEC and qualify as Rule 144A securities which may make them more difficult and costly to sell. (For information about Rule 144A securities, see “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Emerging Market Securities
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| | The Funds may invest in countries or regions with relatively low gross national product per capita compared to the world’s major economies, and in countries or regions with the potential for rapid economic growth (emerging markets). Emerging markets will include any | | | ||
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Investment Technique
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| | | | country: (i) having an “emerging stock market” as defined by the International Finance Corporation; (ii) with low-to-middle-income economies according to the World Bank; (iii) listed in World Bank publications as developing; or (iv) determined by the adviser to be an emerging market as defined above. | | | ||
| | | | Certain emerging market countries are either comparatively underdeveloped or are in the process of becoming developed and may consequently be economically dependent on a relatively few or closely interdependent industries. A high proportion of the securities of many emerging market issuers may also be held by a limited number of large investors trading significant blocks of securities. While a Fund’s subadviser will strive to be sensitive to publicized reversals of economic conditions, political unrest and adverse changes in trading status, unanticipated political and social developments may affect the values of the Fund’s investments in such countries and the availability of additional investments in such countries. | | | ||
| | | | The risks of investing in foreign securities may be intensified in the case of investments in emerging markets. Securities of many issuers in emerging markets may be less liquid and more volatile than securities of comparable domestic issuers. Emerging markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Delays in settlement could result in temporary periods when a portion of the assets of a Fund is uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Fund due to subsequent declines in value of portfolio securities or, if a Fund has entered into a contract to sell the security, in possible liability to the purchaser. Securities prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. In particular, countries with emerging markets may have relatively unstable governments, present the risk of nationalization of businesses, restrictions on foreign ownership, or prohibitions of repatriation of assets, and may have less protection of property rights than more developed countries. | | | ||
| | | | Certain emerging markets may require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, a country could impose temporary restrictions on foreign capital remittances, whether because deterioration occurs in an emerging market’s balance of payments or for other reasons. The Funds could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Funds of any restrictions on investments. | | | ||
| | | | Investments in certain foreign emerging market debt obligations may be restricted or controlled to varying degrees. These restrictions or | | | ||
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Description and Risks
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| | | | controls may at times preclude investment in certain foreign emerging market debt obligations and increase the expenses of the Funds. | | | ||
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Foreign Currency Transactions
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| | When investing in securities denominated in foreign currencies, the Funds will be subject to the additional risk of currency fluctuations. An adverse change in the value of a particular foreign currency as against the U.S. dollar, to the extent that such change is not offset by a gain in other foreign currencies, will result in a decrease in the Fund’s assets. Any such change may also have the effect of decreasing or limiting the income available for distribution. Foreign currencies may be affected by revaluation, adverse political and economic developments, and governmental restrictions. Further, no assurance can be given that currency exchange controls will not be imposed on any particular currency at a later date. | | | ||
| | | | As a result of its investments in foreign securities, a Fund may receive interest or dividend payments, or the proceeds of the sale or redemption of such securities, in the foreign currencies in which such securities are denominated. In that event, the Fund may convert such currencies into dollars at the then current exchange rate. Under certain circumstances, however, such as where the Fund’s subadviser believes that the applicable rate is unfavorable at the time the currencies are received or the Fund’s subadviser anticipates, for any other reason, that the exchange rate will improve, the Fund may hold such currencies for an indefinite period of time. | | | ||
| | | | In addition, a Fund may be required to receive delivery of the foreign currency underlying forward foreign currency contracts it has entered into. This could occur, for example, if an option written by the Fund is exercised or the Fund is unable to close out a forward contract. A Fund may hold foreign currency in anticipation of purchasing foreign securities. | | | ||
| | | | A Fund may also elect to take delivery of the currencies’ underlying options or forward contracts if, in the judgment of the Fund’s subadviser, it is in the best interest of the Fund to do so. In such instances as well, the Fund may convert the foreign currencies to dollars at the then current exchange rate, or may hold such currencies for an indefinite period of time. | | | ||
| | | | While the holding of currencies will permit a Fund to take advantage of favorable movements in the applicable exchange rate, it also exposes the Fund to risk of loss if such rates move in a direction adverse to the Fund’s position. Such losses could reduce any profits or increase any losses sustained by the Fund from the sale or redemption of securities, and could reduce the dollar value of interest or dividend payments received. In addition, the holding of currencies could adversely affect the Fund’s profit or loss on currency options or forward contracts, as well as its hedging strategies. | | | ||
| | | | When a Fund effects foreign currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange market, the Fund incurs expenses in converting assets from one currency to another. A Fund may also effect other types of foreign currency exchange transactions, which have their own risks and costs. | | | ||
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Description and Risks
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| | | | For information about such transactions, please see “Foreign Currency Forward Contracts, Futures and Options” under “Derivatives” in this section of the SAI. | | | ||
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Foreign Investment Companies
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| | Some of the countries in which the Funds may invest may not permit, or may place economic restrictions on, direct investment by outside investors. Investments in such countries may be permitted only through foreign government-approved or -authorized investment vehicles, which may include other investment companies. These funds may also invest in other investment companies that invest in foreign securities. Investing through such vehicles may involve frequent or layered fees or expenses and may also be subject to limitation under the 1940 Act. As a shareholder of another investment company, the Fund would bear, along with other shareholders, its pro rata portion of the other investment company’s expenses, including advisory fees. Those expenses would be in addition to the advisory and other expenses that the Fund bears directly in connection with its own operations. For additional information, see “Mutual Fund Investing” in this section of the SAI. | | | ||
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Privatizations
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| | The governments of some foreign countries have been engaged in programs of selling part or all of their stakes in government owned or controlled enterprises (“privatizations”). Privatizations may offer opportunities for significant capital appreciation. In certain foreign countries, the ability of foreign entities such as the Funds to participate in privatizations may be limited by local law, or the terms on which a Fund may be permitted to participate may be less advantageous than those for local investors. There can be no assurance that foreign governments will continue to sell companies currently owned or controlled by them or that privatization programs will be successful. | | | ||
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Funding Agreements
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| | Each Fund may invest in funding agreements, which are insurance contracts between an investor and the issuing insurance company. For the issuer, they represent senior obligations under an insurance product. For the investor, and from a regulatory perspective, these agreements are treated as securities. These agreements, like other insurance products, are backed by claims on the general assets of the issuing entity and rank on the same priority level as other policy holder claims. Funding agreements typically are issued with a one-year final maturity and a variable interest rate, which may adjust weekly, monthly, or quarterly. Some agreements carry a seven-day put feature. A funding agreement without this feature is considered illiquid and will therefore be subject to the Funds’ limitations on investments in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) Funding agreements are regulated by the state insurance board of the state where they are executed. | | | ||
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Guaranteed Investment Contracts
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| | Each Fund may invest in GICs issued by U.S. and Canadian insurance companies. A GIC requires the investor to make cash contributions to a deposit fund of an insurance company’s general account. The insurance company then makes payments to the investor based on negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate | | | ||
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Description and Risks
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| | | | account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the insurance company’s general assets. Generally, a GIC is not assignable or transferable without the permission of the issuing insurance company, and an active secondary market in GICs does not currently exist. Therefore, these investments may be deemed to be illiquid, in which case they will be subject to the Funds’ limitations on investments in illiquid securities. (See “Illiquid and Restricted Securities” in this section of the SAI.) | | | ||
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Illiquid and Restricted Securities
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| | Each Fund may invest up to 15% of its net assets in securities that are considered illiquid. Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the 1933 Act (“restricted securities”), securities that are otherwise not readily marketable, such as over-the-counter options, and repurchase agreements not entitling the holder to payment of principal in seven days. Such securities may offer higher yields than comparable publicly traded securities, and they also may incur higher risks. | | | ||
| | | | Repurchase agreements, reverse repurchase agreements and time deposits that do not provide for payment to the Fund within seven days after notice or which have a term greater than seven days are deemed illiquid securities for this purpose unless such securities are variable amount master demand notes with maturities of nine months or less or unless the Fund’s subadviser has determined that an adequate trading market exists for such securities or that market quotations are readily available. | | | ||
| | | | The Funds may purchase Rule 144A securities sold to institutional investors without registration under the 1933 Act and commercial paper issued in reliance upon the exemption in Section 4(a)(2) of the 1933 Act, for which an institutional market has developed. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on the issuer’s ability to honor a demand for repayment of the unregistered security. | | | ||
| | | | Although the securities described in this section generally will be Considered illiquid, a security’s contractual or legal restrictions on resale to the general public or to certain institutions may not be indicative of the liquidity of the security and therefore these securities may be determined to be liquid in accordance with guidelines established by the Board. The Trustees have delegated to each Fund’s subadviser the day-to-day determination of the liquidity of such securities in the respective Fund’s portfolio, although they have retained oversight and ultimate responsibility for such determinations. | | | ||
| | | | Although no definite quality criteria are used, the Trustees have directed the subadvisers to consider such factors as (i) the nature of the market for a security (including the institutional private resale markets); (ii) the terms of these securities or other instruments allowing for the disposition to a third party or the issuer thereof (e.g. certain repurchase obligations and demand instruments); (iii) availability of market quotations; and (iv) other permissible factors. The Trustees monitor implementation of the guidelines on a periodic basis. | | | ||
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Investment Technique
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Description and Risks
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| | | | If illiquid securities exceed 15% of a Fund’s net assets after the time of purchase, the Fund will take steps to reduce in an orderly fashion its holdings of illiquid securities. Because illiquid securities may not be readily marketable, the relevant Fund’s subadviser may not be able to dispose of them in a timely manner. As a result, the Fund may be forced to hold illiquid securities while their price depreciates. Depreciation in the price of illiquid securities may cause the NAV of the Fund holding them to decline. A security that is determined by a Fund’s subadviser to be liquid may subsequently revert to being illiquid if not enough buyer interest exists. | | | ||
| | | | Restricted securities ordinarily can be sold by the Fund in secondary market transactions to certain qualified investors pursuant to rules established by the SEC, in privately negotiated transactions to a limited number of purchasers or in a public offering made pursuant to an effective registration statement under the 1933 Act. When registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable time may elapse between the decision to sell and the sale date. If, during such period, adverse market conditions were to develop, the Fund might obtain a less favorable price than the price which prevailed when it decided to sell. | | | ||
| | | | Restricted securities will be priced at fair value as determined in good faith by the Trustees or their delegate. | | | ||
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Leverage
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| | Each Fund may employ investment techniques that create leverage, either by using borrowed capital to increase the amount invested, or investing in instruments, including derivatives, where the investment loss can exceed the original amount invested. Certain investments or trading strategies that involve leverage can result in losses that greatly exceed the amount originally invested. | | | ||
| | | | The SEC takes the position that transactions that have a leveraging effect on the capital structure of a mutual fund or are economically equivalent to borrowing can be viewed as constituting a form of borrowing by the fund for purposes of the 1940 Act. These transactions can include buying and selling certain derivatives (such as futures contracts); selling (or writing) put and call options; engaging in sale-buybacks; entering into firm-commitment and stand-by commitment agreements; engaging in when-issued, delayed-delivery, or forward-commitment transactions; and other similar trading practices (additional discussion about a number of these transactions can be found throughout this section of the SAI). As a result, when a Fund enters into such transactions the transactions may be subject to the same requirements and restrictions as borrowing. (See “Borrowing” below for additional information.) | | | ||
| | | | The following are some of the Funds’ permitted investment techniques that are generally viewed as creating leverage for the Funds. | | | ||
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Borrowing
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| | A Fund’s ability to borrow money is limited by its investment policies and limitations, by the 1940 Act, and by applicable exemptions, no-action letters, interpretations, and other pronouncements issued from time to time by the SEC and its staff or any other regulatory authority with jurisdiction. Under the 1940 Act, a Fund is required to | | | ||
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Investment Technique
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| | | | maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the Fund’s total assets made for temporary or emergency purposes. Any borrowings for temporary purposes in excess of 5% of the Fund’s total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of market fluctuations or for other reasons, a Fund may be required to sell some of its portfolio holdings within three days (excluding Sundays and holidays) to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. | | | ||
| | | | Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a Fund’s portfolio. Money borrowed will be subject to interest costs that may or may not be recovered by earnings on the securities purchased. A Fund also may be required to maintain minimum average balances in connection with a borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. | | | ||
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Mortgage “Dollar-Roll” Transactions
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| | Each Fund may enter into mortgage “dollar-roll” transactions pursuant to which it sells mortgage-backed securities for delivery in the future and simultaneously contracts to repurchase substantially similar securities on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the mortgage-backed securities. The Fund is compensated for the lost interest by the difference between the current sales price and the lower price for the future purchase (often referred to as the “drop”) as well as by the interest earned on, and gains from, the investment of the cash proceeds of the initial sale. The Fund may also be compensated by receipt of a commitment fee. If the income and capital gains from the Fund’s investment of the cash from the initial sale do not exceed the income, capital appreciation and gain or loss that would have been realized on the securities sold as part of the dollar roll, the use of this technique will diminish the investment performance of the Fund compared with what the performance would have been without the use of the dollar roll. | | | ||
| | | | Dollar-roll transactions involve the risk that the market value of the securities the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. If the broker-dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted. Successful use of dollar rolls may depend upon the Fund’s subadviser’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed. | | | ||
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Reverse Repurchase Agreements
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| | Reverse repurchase agreements are transactions in which the Fund sells a security and simultaneously commits to repurchase that security from the buyer, such as a bank or broker-dealer, at an agreed-upon price on an agreed-upon future date. The resale price in a reverse repurchase agreement reflects a market rate of interest that is not | | | ||
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Description and Risks
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| | | | related to the coupon rate or maturity of the sold security. For certain demand agreements, there is no agreed-upon repurchase date and interest payments are calculated daily, often based upon the prevailing overnight repurchase rate. | | | ||
| | | | Generally, a reverse repurchase agreement enables the Fund to recover for the term of the reverse repurchase agreement all or most of the cash invested in the portfolio securities sold and to keep the interest income associated with those portfolio securities. Such transactions are only advantageous if the interest cost to the Fund of the reverse repurchase transaction is less than the cost of obtaining the cash otherwise. In addition, interest costs on the money received in a reverse repurchase agreement may exceed the return received on the investments made by the Fund with those monies. Using reverse repurchase agreements to earn additional income involves the risk that the interest earned on the invested proceeds is less than the expense of the reverse repurchase agreement transaction. | | | ||
| | | | Because reverse repurchase agreements are considered borrowing under the 1940 Act, while a reverse repurchase agreement is outstanding, the Fund will maintain cash and appropriate liquid assets in a segregated custodial account to cover its obligation under the agreement. A Fund will enter into reverse repurchase agreements only with parties that the Fund’s subadviser deems creditworthy, but such investments are still subject to the risks of leverage discussed above. | | | ||
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Leveraged Buyouts
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| | A Fund may invest in leveraged buyout limited partnerships and funds that, in turn, invest in leveraged buyout transactions (“LBOs”). | | | ||
| | | | An LBO, generally, is an acquisition of an existing business by a newly formed corporation financed largely with debt assumed by such newly formed corporation to be later repaid with funds generated from the acquired company. | | | ||
| | | | Equity investments in LBOs may appreciate substantially in value given only modest growth in the earnings or cash flow of the acquired business. Investments in LBO limited partnerships and funds, however, present a number of risks. Investments in LBO limited partnerships and funds will normally lack liquidity and may be subject to intense competition from other LBO limited partnerships and funds. | | | ||
| | | | Additionally, if the cash flow of the acquired company is insufficient to service the debt assumed in the LBO, the LBO limited partnership or fund could lose all or part of its investment in such acquired company. | | | ||
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Master Limited Partnerships
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| | An investment in MLP units involves some risks that differ from an investment in the common stock of a corporation. Holders of MLP units have limited control on matters affecting the partnership. Conflicts of interest exist between common unit holders and the general partner, including those arising from incentive distribution payments. MLPs holding credit-related investments are subject to interest rate risk and the risk of default on payment obligations by debt issuers. MLPs that concentrate in a particular industry or a particular geographic region are subject to risks associated with such industry or region. The fees that MLPs charge for transportation of oil | | | ||
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| | | | and gas products through their pipelines are subject to government regulation, which could negatively impact the revenue stream. Investing in MLPs also involves certain risks related to investing in the underlying assets of the MLPs and risks associated with pooled investment vehicles. These include the risk of environmental incidents, terrorist attacks, demand destruction from high commodity prices, proliferation of alternative energy sources, inadequate supply of external capital, and conflicts of interest with the general partner. There are also certain tax risks associated with investment in MLPs. The benefit derived from a Fund’s investment in MLPs is somewhat dependent on the MLP being treated as a partnership for federal income tax purposes, so any change to this status would adversely affect the price of MLP units. Historically, a substantial portion of the gross taxable income of MLPs has been offset by tax losses and deductions reducing gross income received by investors, and any change to these tax rules would adversely affect the price of an MLP unit. Certain MLPs may trade less frequently than other securities, and those with limited trading volumes may display volatile or erratic price movements. | | | ||
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Money Market Instruments
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| | Each Fund may invest in money market instruments, which are high-quality short-term investments. The types of money market instruments most commonly acquired by the Funds are discussed below, although each Fund is also permitted to invest in other types of money market instruments to the extent consistent with the Fund’s investment limitations and restrictions. | | | ||
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Banker’s’ Acceptances
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| | A banker’s acceptance is a time draft drawn on a commercial bank by a borrower usually in connection with an international commercial transaction (to finance the import, export, transfer or storage of goods). The borrower, as well as the bank, is liable for payment, and the bank unconditionally guarantees to pay the draft at its face amount on the maturity date. Most acceptances have maturities of six months or less and are traded in secondary markets prior to maturity. | | | ||
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Certificates of Deposit
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| | Certificates of deposit are generally short-term, interest-bearing negotiable certificates issued by banks or savings and loan associations against funds deposited in the issuing institution. They generally may be withdrawn on demand but may be subject to early withdrawal penalties which could reduce the Fund’s yield. Deposits subject to early withdrawal penalties or that mature in more than seven days are treated as illiquid securities if there is no readily available market for the securities. | | | ||
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Commercial Paper
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| | Commercial paper refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and has a maturity at the time of issuance not exceeding nine months. | | | ||
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Obligations of Foreign Banks and Foreign Branches of U.S. Banks
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| | The money market instruments in which the Funds may invest include negotiable certificates of deposit, bankers’ acceptances and time deposits of foreign branches of U.S. banks, foreign banks and their non-U.S. branches (Eurodollars), U.S. branches and agencies of foreign banks (Yankee dollars), and wholly-owned banking-related subsidiaries of foreign banks. For the purposes of each Fund’s | | | ||
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| | | | investment policies with respect to money market instruments, obligations of foreign branches of U.S. banks and of foreign banks are obligations of the issuing bank and may be general obligations of the parent bank. Such obligations, however, may be limited by the terms of a specific obligation and by government regulation. As with investment in non-U.S. securities in general, investments in the obligations of foreign branches of U.S. banks and of foreign banks may subject a Fund to investment risks that are different in some respects from those of investments in obligations of domestic issuers. | | | ||
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Time Deposits
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| | Time deposits are deposits in a bank or other financial institution for a specified period of time at a fixed interest rate for which a negotiable certificate is not received. | | | ||
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U.S. Government Obligations
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| | Securities issued or guaranteed as to principal and interest by the United States Government include a variety of Treasury securities, which differ only in their interest rates, maturities, and times of issuance. Treasury bills have maturities of one year or less. Treasury notes have maturities of one to ten years, and Treasury bonds generally have maturities of greater than ten years. | | | ||
| | | | Agencies of the United States Government which issue or guarantee obligations include, among others, Export-Import Bank of the United States, Farmers Home Administration, Federal Housing Administration, GNMA, Maritime Administration, Small Business Administration and The Tennessee Valley Authority. Obligations of instrumentalities of the United States Government include securities issued or guaranteed by, among others, FNMA, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks, Banks for Cooperatives, and the U.S. Postal Service. Some of these securities are supported by the full faith and credit of the U.S. Government, others are supported by the right of the issuer to borrow from the Treasury, while still others are supported only by the credit of the instrumentality. There is no guarantee that the U.S. Government will provide financial support to its agencies or instrumentalities, now or in the future, if it is not obligated to do so by law. Accordingly, although these securities have historically involved little risk of loss of principal if held to maturity, they may involve more risk than securities backed by the full faith and credit of the U.S. Government because the Fund must look principally to the agency or instrumentality issuing or guaranteeing the securities for repayment and may not be able to assert a claim against the United States if the agency or instrumentality does not meet its commitment. | | | ||
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Mutual Fund Investing
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| | Each Fund is authorized to invest in the securities of other investment companies subject to the limitations contained in the 1940 Act. | | | ||
| | | | Investment companies in which the Fund may invest may include ETFs. An ETF is an investment company classified as an open-end investment company or unit investment trust that is traded similarly to a publicly traded company. Most ETFs seek to achieve the same return as a particular market index. That type of ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An index-based ETF will invest in all of the securities included in the index, a representative | | | ||
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| | | | sample of the securities included in the index, or other investments expected to produce returns substantially similar to that of the index. Other types of ETFs include leveraged or inverse ETFs, which are ETFs that seek to achieve a daily return that is a multiple or an inverse multiple of the daily return of a securities index. An important characteristic of these ETFs is that they seek to achieve their stated objectives on a daily basis, and their performance over longer periods of time can differ significantly from the multiple or inverse multiple of the index performance over those longer periods of time. ETFs also include actively managed ETFs that pursue active management strategies and publish their portfolio holdings on a frequent basis. | | | ||
| | | | In connection with the management of its daily cash positions, each Fund may invest in securities issued by investment companies that invest in short-term debt securities (which may include municipal obligations that are exempt from Federal income taxes) and that seek to maintain a $1.00 NAV per share. | | | ||
| | | | In certain countries, investments by the Funds may only be made through investments in other investment companies that, in turn, are authorized to invest in the securities that are issued in such countries. (See “Foreign Investment Companies” under “Foreign Investing” in this section of the SAI.) | | | ||
| | | | Under the 1940 Act, a Fund generally may not own more than 3% of the outstanding voting stock of an investment company, invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in the securities of investment companies. In some instances, a Fund may invest in an investment company in excess of these limits; for instance, with respect to investments in money market funds or investments made pursuant to exemptive rules adopted and/or orders granted by the SEC. The SEC has adopted exemptive rules to permit funds of funds to exceed these limits when complying with certain conditions, which differ depending upon whether the funds in which a fund of funds invests are affiliated or unaffiliated with the fund of funds. Many ETFs have obtained exemptive relief from the SEC to permit unaffiliated funds to invest in the ETF’s shares beyond the statutory limitations discussed above, subject to certain conditions. The Funds may rely on these exemptive rules and/or orders to invest in affiliated or unaffiliated mutual funds and/or unaffiliated ETFs. In addition to this, the Trust has obtained exemptive relief permitting the Funds to exceed the limitations with respect to investments in affiliated and unaffiliated funds that are not themselves funds of funds, subject to certain conditions. | | | ||
| | | | The risks associated with investing in other investment companies generally reflect the risks of owning shares of the underlying securities in which those investment companies invest, although lack of liquidity in an investment company could result in its value being more volatile than the underlying portfolio of securities. For purposes of complying with investment policies requiring a Fund to invest a percentage of its assets in a certain type of investments (e.g., stocks of small capitalization companies), the Fund generally will look through an investment company in which it invests, to categorize the investment | | | ||
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| | | | company in accordance with the types of investments the investment company holds. | | | ||
| | | | Certain investment companies in which the Funds may invest may be considered commodity pools under the CEA and applicable CFTC regulations. If a Fund invests in such an investment company, the Fund will be required to treat some or all of its holding of the investment company’s shares as a commodity interest for the purposes of determining whether the Fund is qualified to claim exclusion or exemption from regulation by the CFTC. (See “Commodity Interests” in this section of the SAI for additional information regarding the implications to the Funds of investing in commodity interests.) | | | ||
| | | | Investors in each Fund should recognize that when a Fund invests in another investment company, the Fund will bear its pro rata portion of the other investment company’s expenses, including advisory fees, in addition to the expenses the Fund bears directly in connection with its own operations. | | | ||
|
Real Estate Investment Trusts (REITs)
|
| | Each Fund may invest in REITs. REITs pool investors’ funds for investment primarily in income producing commercial real estate or real estate related loans. A REIT is not taxed on income distributed to shareholders if it complies with several requirements relating to its organization, ownership, assets, and income and a requirement that it distribute to its shareholders at least 90% of its taxable income (other than net capital gains) for each taxable year. | | | ||
| | | | REITs can generally be classified as follows: | | | ||
| | | |
•
Equity REITs, which invest the majority of their assets directly in real property and derive their income primarily from rents. Equity REITs can also realize capital gains by selling properties that have appreciated in value.
|
| | ||
| | | |
•
Mortgage REITs, which invest the majority of their assets in real estate mortgages and derive their income primarily from interest payments.
|
| | ||
| | | |
•
Hybrid REITs, which combine the characteristics of both equity REITs and mortgage REITs.
|
| | ||
| | | | REITs are structured similarly to closed-end investment companies in that they are essentially holding companies. An investor should realize that by investing in REITs indirectly through the Fund, he will bear not only his proportionate share of the expenses of the Fund, but also, indirectly, similar expenses of the underlying REITs. (See “Mutual Fund Investing” in this section of the SAI.) | | | ||
| | | | Selecting REITs requires an evaluation of the merits of each type of asset a particular REIT owns, as well as regional and local economics. Due to the proliferation of REITs in recent years and the relative lack of sophistication of certain REIT managers, the quality of REIT assets has varied significantly. The risks associated with REITs are similar to those associated with the direct ownership of real estate. These include declines in the value of real estate, risks related to general and local economic conditions, dependence on management skill, cash flow dependence, possible lack of availability of long-term | | | ||
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Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | mortgage funds, over-building, extended vacancies of properties, decreased occupancy rates and increased competition, increases in property taxes and operating expenses, changes in neighborhood values and the appeal of the properties to tenants and changes in interest rates. | | | ||
| | | | Equity REITs may be affected by changes in the value of the underlying properties they own, while mortgage REITs may be affected by the quality of any credit extended. Further, equity and mortgage REITs are dependent upon management skills and generally are not diversified. Equity and mortgage REITs are also subject to potential defaults by borrowers, self-liquidation, and the possibility of failing to qualify for tax-free status of income under the Code and failing to maintain exemption from the 1940 Act. In the event of a default by a borrower or lessee, the REIT may experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. In addition, investment in REITs could cause the Fund to possibly fail to qualify as a regulated investment company. (See the “Dividends, Distributions and Taxes” section of the SAI.) | | | ||
|
Repurchase Agreements
|
| |
Each Fund may enter into repurchase agreements by which the Fund purchases portfolio securities subject to the seller’s agreement to repurchase them at a mutually agreed-upon time and price. The repurchase price may be higher than the purchase price, the difference being income to the Fund, or the purchase and repurchase price may be the same, with interest payable to the Fund at a stated rate together with the repurchase price on repurchase. In either case, the income to the Fund is unrelated to the interest rate on the security.
A repurchase agreement must be collateralized by obligations that could otherwise be purchased by the Fund (except with respect to maturity), and these must be maintained by the seller in a segregated account for the Fund. The value of such collateral will be monitored throughout the term of the repurchase agreement in an attempt to ensure that the market value of the collateral always equals or exceeds the repurchase price (including accrued interest). If the value of the collateral dips below such repurchase price, additional collateral will be requested and, when received, added to the account to maintain full collateralization.
|
| | Repurchase agreements of more than seven days’ duration are subject to each Fund’s limitation on investments in illiquid securities, which means that no more than 15% of the market value of a Fund’s total assets may be invested in repurchase agreements with a maturity of more than seven days and in other illiquid securities. | |
| | | | Repurchase agreements will be entered into with commercial banks, brokers and dealers considered by the relevant Fund’s subadviser to be creditworthy. However, the use of repurchase agreements involves certain risks such as default by, or insolvency of, the other party to the transaction. The Fund also might incur disposition costs in connection with liquidating the underlying securities or enforcing its rights. | | | ||
| | | | Typically, repurchase agreements are in effect for one week or less, but they may be in effect for longer periods of time. | | | ||
|
Securities Lending
|
| | Subject to certain investment restrictions, each Fund may, subject to the Trustees’ and Trust Treasurer’s approval, lend securities from its portfolio to brokers, dealers and financial institutions deemed creditworthy and receive, as collateral, cash or cash equivalents which at | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | all times while the loan is outstanding will be maintained in amounts equal to at least 100% of the current market value of the loaned securities. Any cash collateral will be invested in short-term securities that will increase the current income of the Fund lending its securities. | | | ||
| | | | A Fund will have the right to regain record ownership of loaned securities to exercise beneficial rights such as voting rights and subscription rights. While a securities loan is outstanding, the Fund is to receive an amount equal to any dividends, interest or other distributions with respect to the loaned securities. A Fund may pay reasonable fees to persons unaffiliated with the Trust for services in arranging such loans. | | | ||
| | | | Even though securities lending usually does not impose market risks on the lending Fund, as with any extension of credit, there are risks of delay in recovery of the loaned securities and in some cases loss of rights in the collateral should the borrower of the securities fail financially. In addition, the value of the collateral taken as security for the securities loaned may decline in value or may be difficult to convert to cash in the event that a Fund must rely on the collateral to recover the value of the securities. Moreover, if the borrower of the securities is insolvent, under current bankruptcy law, the Fund could be ordered by a court not to liquidate the collateral for an indeterminate period of time. If the borrower is the subject of insolvency proceedings and the collateral held might not be liquidated, the result could be a material adverse impact on the liquidity of the lending Fund. | | | ||
| | | | No Fund will lend securities having a value in excess of 33 1 ∕ 3 % of its assets, including collateral received for loaned securities (valued at the time of any loan). | | | ||
|
Short Sales
|
| | Each Fund may sell securities short as part of its overall portfolio management strategies involving the use of derivative instruments and to offset potential declines in long positions in similar securities. A short sale is a transaction in which a Fund sells a security it does not own or have the right to acquire, or that it owns but does not wish to deliver, in anticipation that the market price of that security will decline. A short sale is “against the box” to the extent the Fund contemporaneously owns, or has the right to obtain at no added cost, securities identical to those sold short. All other short sales are commonly referred to as “naked” short sales. | | | ||
| | | | When a Fund makes a short sale, the broker-dealer through which the short sale is made must borrow the security sold short and deliver it to the party purchasing the security. The Fund is required to make a margin deposit in connection with such short sales; the Fund may have to pay a fee to borrow particular securities and will often be obligated to pay over any dividends and accrued interest on borrowed securities. If the price of the security sold short increases between the time of the short sale and the time the Fund covers its short position, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss increased, by the transaction costs described above. The successful use of short selling may be adversely affected by imperfect correlation between movements in the price of the security sold short and the securities being hedged. | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | If a Fund sells securities short against the box, it may protect unrealized gains, but will lose the opportunity to profit on such securities if the price rises. If a Fund engages in naked short sales, the Fund’s risk of loss could be as much as the maximum attainable price of the security (which could be limitless) less the price paid by the Fund for the security at the time it was borrowed. | | | ||
| | | | When a Fund sells securities short, to the extent required by applicable law and regulation the Fund will “cover” the short sale, which generally means that the Fund will segregate any asset, including equity securities and non-investment-grade debt so long as the asset is liquid, unencumbered and marked to market daily, equal to the market value of the securities sold short, reduced by any amount deposited as margin. Alternatively, the Fund may “cover” a short sale by (a) owning the underlying securities, (b) owning securities currently convertible into the underlying securities at an exercise price equal to or less than the current market price of the underlying securities, or (c) owning a purchased call option on the underlying securities with an exercise price equal to or less than the price at which the underlying securities were sold short. | | | ||
|
Special Situations
|
| | Each Fund may invest in special situations that the Fund’s subadviser believes present opportunities for capital growth. Such situations most typically include corporate restructurings, mergers, and tender offers. | | | ||
| | | | A special situation arises when, in the opinion of the Fund’s subadviser, the securities of a particular company will, within a reasonably estimable period of time, be accorded market recognition at an appreciated value solely by reason of a development particularly or uniquely applicable to that company and regardless of general business conditions or movements of the market as a whole. | | | ||
| | | | Developments creating special situations might include, among others, the following: liquidations, reorganizations, recapitalizations, mergers, or tender offers; material litigation or resolution thereof; technological breakthroughs; and new management or management policies. Although large and well-known companies may be involved, special situations often involve much greater risk than is inherent in ordinary investment securities. | | | ||
|
Standby Commitments and Puts
|
| | A Fund may purchase securities at a price which would result in a yield to maturity lower than that generally offered by the seller at the time of purchase when the Fund can simultaneously acquire the right to sell the securities back to the seller, the issuer or a third-party (the “writer”) at an agreed-upon price at any time during a stated period or on a certain date. Such a right is generally denoted as a “standby commitment” or a “put.” | | | ||
| | | | The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit a Fund to meet redemptions and remain as fully invested as possible in municipal securities. The Funds reserve the right to engage in put transactions. | | | ||
| | | | The right to put the securities depends on the writer’s ability to pay for the securities at the time the put is exercised. A Fund would limit its put transactions to institutions which the Subadviser believes present | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | minimal credit risks, and the Subadviser would use its best efforts to initially determine and continue to monitor the financial strength of the sellers of the options by evaluating their financial statements and such other information as is available in the marketplace. It may, however, be difficult to monitor the financial strength of the writers because adequate current financial information may not be available. | | | ||
| | | | In the event that any writer is unable to honor a put for financial reasons, a Fund would be a general creditor (i.e., on a parity with all other general unsecured creditors) of the writer. Furthermore, particular provisions of the contract between a Fund and the writer may excuse the writer from repurchasing the securities. For example, a change in the published rating of the underlying securities or any similar event that has an adverse effect on the issuer’s credit or a provision in the contract that the put will not be exercised except in certain special cases (such as to maintain portfolio liquidity). A Fund could, however, at any time sell the underlying portfolio security in the open market or wait until the portfolio security matures, at which time it should realize the full par value of the security. | | | ||
| | | | The securities purchased subject to a put may be sold to third persons at any time, even though the put is outstanding, but the put itself, unless it is an integral part of the security as originally issued, may not be marketable or otherwise assignable. Therefore, the put would have value only to a Fund. | | | ||
| | | | Sale of the securities to third parties or lapse of time with the put unexercised may terminate the right to put the securities. Prior to the expiration of any put option, a Fund could seek to negotiate terms for the extension of such an option. If such a renewal cannot be negotiated on terms satisfactory to a Fund, the Fund could, of course, sell the portfolio security. | | | ||
| | | | The maturity of the underlying security will generally be different from that of the put. | | | ||
| | | | There will be no limit to the percentage of portfolio securities that a Fund may purchase subject to a standby commitment or put, but the amount paid directly or indirectly for all standby commitments or puts which are not integral parts of the security as originally issued held in a Fund will not exceed one-half of 1% of the value of the total assets of such Fund calculated immediately after any such put is acquired. | | | ||
|
Stapled Securities
|
| | A stapled security consists of two or more securities that are combined to form one security such that the individual securities cannot be traded separately. For example, an interest in a portfolio of real estate properties (a REIT) may be combined with an interest in the operating company that manages the portfolio of those properties. Investors in stapled securities are subject to the risks inherent with each security that makes up the stapled security. | | | ||
|
Structured Notes
|
| | Structured Notes are derivatives where the amount of principal repayment and or interest payments is based upon the movement of one or more factors. These factors include, but are not limited to, currency exchange rates, interest rates (such as the prime lending rate and LIBOR) and stock indices such as the S&P 500 ® Index. | | | ||
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Investment Technique
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| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | In some cases, the impact of the movements of these factors may increase or decrease through the use of multipliers or deflators. The use of structured notes allows the Fund to tailor its investments to the specific risks and returns the Subadviser wishes to accept while avoiding or reducing certain other risks. | | | ||
|
Supranational Agency Obligations
|
| | Supranational Agency Obligations are obligations of supranational entities established through the joint participation of several governments, including the Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (also known as the “World Bank”), African Development Bank, European Union, European Investment Bank, and the Nordic Investment Bank. | | | ||
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Temporary Investments
|
| |
When business or financial conditions warrant, each Fund may assume a temporary defensive position by investing in money-market instruments, including obligations of the U.S. Government and its agencies and instrumentalities, obligations of foreign sovereigns, other debt securities, commercial paper including bank obligations, certificates of deposit (including Eurodollar certificates of deposit) and repurchase agreements. (See “Money Market Instruments” in this section of the SAI for more information about these types of investments.)
For temporary defensive purposes, during periods in which a Fund’s subadviser believes adverse changes in economic, financial or political conditions make it advisable, the Fund may reduce its holdings in equity and other securities and may invest up to 100% of its assets in certain short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) debt securities and in cash (U.S. dollars, foreign currencies, or multicurrency units). The short-term and medium-term debt securities in which a Fund may invest for temporary defensive purposes will be those that the Fund’s subadviser believes to be of high quality (i.e., subject to relatively low risk of loss of interest or principal). If rated, these securities will be rated in one of the three highest rating categories by rating services such as Moody’s or S&P (i.e., rated at least A).
|
| |
The Funds are not prohibited from investing in bank obligations issued by clients of the Funds’ administrator or distributor or their respective parent or affiliated companies. The purchase of Fund shares by these banks or their customers will not be a consideration in deciding which bank obligations the Funds will purchase. A Fund will not purchase obligations issued by the Adviser, Subadvisers, or their affiliates.
The Ceredex Small-Cap Value Equity Fund also may invest in investment grade fixed income securities and mid- to large-capitalization common stocks that would not ordinarily be consistent with the Fund’s objective.
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|
|
Trust Preferred Securities
|
| | Trust preferred securities are convertible preferred shares issued by a trust where proceeds from the sale are used to purchase convertible subordinated debt from the issuer. The convertible subordinated debt is the sole asset of the trust. The coupon from the issuer to the trust exactly mirrors the preferred dividend paid by the trust. Upon conversion by the investors, the trust in turn converts the convertible debentures and passes through the shares to the investors. | | | ||
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Investment Technique
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| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
|
Warrants or Rights to Purchase Securities
|
| | Each Fund may invest in or acquire warrants or rights to purchase equity or fixed income securities at a specified price during a specific period of time. A Fund will make such investments only if the underlying securities are deemed appropriate by the Fund’s subadviser for inclusion in the Fund’s portfolio. Included are warrants and rights whose underlying securities are not traded on principal domestic or foreign exchanges. Warrants and stock rights are almost identical to call options in their nature, use and effect except that they are issued by the issuer of the underlying security, rather than an option writer, and they generally have longer expiration dates than call options. (See “Options” in this section of the SAI for information about call options.) | | | ||
| | | | Bonds with warrants attached to purchase equity securities have many characteristics of convertible bonds and their prices may, to some degree, reflect the performance of the underlying stock. However, unlike convertible securities and preferred stocks, warrants do not pay a fixed dividend. Bonds also may be issued with warrants attached to purchase additional fixed income securities at the same coupon rate. A decline in interest rates would permit a Fund holding such warrants to buy additional bonds at the favorable rate or to sell the warrants at a profit. If interest rates rise, the warrants would generally expire with no value. | | | ||
| | | | A Fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices (“index warrants”). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying index or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If a Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. | | | ||
| | | | A Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund’s use of index warrants are generally similar to those relating to its use of index options. (See “Options” in this section of the SAI for information about index options.) Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | warrants generally have longer terms than index options. Although a Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit a Fund’s ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. | | | ||
|
When-Issued and Delayed Delivery Transactions
|
| | Each Fund may purchase securities on a when-issued or forward commitment basis. These transactions are also known as delayed delivery transactions. (The phrase “delayed delivery” is not intended to include purchases where a delay in delivery involves only a brief period required by the selling party solely to locate appropriate certificates and prepare them for submission for clearance and settlement in the customary way.) Delayed delivery transactions involve a commitment by the Fund to purchase or sell securities at a future date (ordinarily up to 90 days later). The price of the underlying securities (usually expressed in terms of yield) and the date when the securities will be delivered and paid for (the settlement date) are fixed at the time the transaction is negotiated. When-issued purchases and forward commitments are negotiated directly with the selling party. | | | ||
| | | | When-issued purchases and forward commitments enable the Fund to lock in what is believed to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest rates. For example, in periods of rising interest rates and falling bond prices, the Fund might sell debt securities it owns on a forward commitment basis to limit its exposure to falling prices. In periods of falling interest rates and rising prices, the Fund might sell securities it owns and purchase the same or similar securities on a when-issued or forward commitment basis, thereby obtaining the benefit of currently higher yields. The Fund will not enter into such transactions for the purpose of leverage. | | | ||
| | | | The value of securities purchased on a when-issued or forward commitment basis and any subsequent fluctuations in their value will be reflected in the Fund’s NAV starting on the first business day after the date of the agreement to purchase the securities. The Fund will be subject to the rights and risks of ownership of the securities on the agreement date. However, the Fund will not earn interest on securities it has committed to purchase until they are paid for and received. A seller’s failure to deliver securities to the Fund could prevent the Fund from realizing a price or yield considered to be advantageous and could cause the Fund to incur expenses associated with unwinding the transaction. | | | ||
| | | | When a Fund makes a forward commitment to sell securities it owns, the proceeds to be received upon settlement will be included in the Fund’s assets. Fluctuations in the market value of the underlying securities will not be reflected in the Fund’s NAV as long as the commitment to sell remains in effect. Settlement of when-issued purchases and forward commitment transactions generally takes place up to 90 days after the date of the transaction, but the Fund may agree to a longer settlement period. | | | ||
|
Investment Technique
|
| |
Description and Risks
|
| |
Fund-Specific Limitations
|
|
| | | | The Funds will make commitments to purchase securities on a when-issued basis or to purchase or sell securities on a forward commitment basis only with the intention of completing the transaction and actually purchasing or selling the securities. If deemed advisable as a matter of investment strategy, however, a Fund may dispose of or renegotiate a commitment after it is entered into. A Fund also may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. The Fund may realize a capital gain or loss in connection with these transactions. | | | ||
| | | | When a Fund purchases securities on a when-issued or forward-commitment basis, the Fund will specifically designate on its accounting records securities having a value (determined daily) at least equal to the amount of the Fund’s purchase commitments. These procedures are designed to ensure that each Fund will maintain sufficient assets at all times to cover its obligations under when-issued purchases and forward commitments. | | | ||
|
Name and Year of Birth
|
| |
Length of
Time Served |
| |
Number of
Portfolios in Fund complex Overseen by Trustee |
| |
Principal Occupation(s)
During Past 5 Years |
| |
Other Directorships Held by Trustee
During Past 5 Years |
|
|
McLoughlin, Philip [Chairman]
YOB: 1946 |
| | Served since 1989 | | |
[100]
|
| | Retired | | | Chairman (since 2002) and Trustee (since 1989), Virtus Mutual Fund Complex ([78] portfolios); Chairman and Trustee (since 2003), Virtus Variable Insurance Trust (9 portfolios); Trustee/Director and Chairman (since 2011), Virtus Closed-End Funds (3 portfolios); Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (4 portfolios); Director (since 1995), closed-end funds managed by Duff & Phelps Investment Management Co. (4 portfolios); Director and Chairman (since 2016), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc.; and Director (since 1991) and Chairman (since 2010), World Trust Fund (closed-end investment firm in Luxembourg). | |
| McNamara, Geraldine M. YOB: 1951 | | | Served since 2002 | | |
[95]
|
| | Retired | | | Trustee (since 2001), Virtus Mutual Fund Complex ([78] portfolios); Trustee (since 2015), Virtus Variable Insurance Trust (9 portfolios); Trustee (since 2016) Virtus Alternative Solutions Trust (4 portfolios); and Director (since 2003), closed-end funds managed by Duff & Phelps Investment Management Co. (4 portfolios). | |
|
Oates, James M.
YOB: 1946 |
| | Served since 2005 | | |
[96]
|
| |
Managing Director
(since 1994), Wydown Group (consulting firm). |
| | Trustee (since 1987), Virtus Mutual Fund Complex ([78] portfolios); Trustee (since 2016) Virtus Variable Insurance Trust (9 portfolios); Trustee/Director (since 2013), Virtus Closed-End Funds (3 portfolios); Trustee (since 2013), Virtus Alternative Solutions Trust (4 portfolios); Director (since 2016), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc.; Director (since 1996), Stifel Financial; Chairman and Director (1999 to 2014), Connecticut River Bank; Director (2002 to 2014), New Hampshire Trust Company; Chairman and Trustee (since 2005), John Hancock Fund Complex (228 portfolios); and Non-Executive Chairman (2000 to 2014), Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services). | |
|
Name and Year of Birth
|
| |
Length of
Time Served |
| |
Number of
Portfolios in Fund complex Overseen by Trustee |
| |
Principal Occupation(s)
During Past 5 Years |
| |
Other Directorships Held by Trustee
During Past 5 Years |
|
|
Segerson, Richard E.
YOB: 1946 |
| | Served since 2005 | | |
[91]
|
| | Retired | | | Trustee (since 1983), Virtus Mutual Fund Complex ([78] portfolios); Trustee (since 2016) Virtus Alternative Solutions Trust (4 portfolios) and Virtus Variable Insurance Trust (9 portfolios); and Managing Director (1998 to 2013), Northway Management Company. | |
| Verdonck, Ferdinand L.J. YOB: 1942 | | | Served since 2005 | | |
[91]
|
| |
Director (1998 to July 2015), The J.P. Morgan Continental European Investment Trust; Director (2005 to 2013), Galapagos N.V. (biotechnology); Director (1998 to 2015) Groupe SNEF; Vice Chairman (since 2014), Affirmed Therapeutics (biotechnology); and
Mr. Verdonck is also a director of several non-U.S. companies |
| |
Trustee (since 2002), Virtus Mutual Fund Complex ([78] portfolios); and Trustee
(since 2016) Virtus Alternative Solutions Trust (4 portfolios) and Virtus Variable Insurance Trust (9 portfolios). |
|
|
Name and Year of Birth
|
| |
Length of
Time Served |
| |
Number of
Portfolios in Fund complex Overseen by Trustee |
| |
Principal Occupation(s)
During Past 5 Years |
| |
Other Directorships Held by Trustee
During Past 5 Years |
|
|
Aylward, George R.
YOB: 1964 |
| | Served since 2006 | | |
[101]
|
| | Director, President and Chief Executive Officer (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various senior officer positions with Virtus affiliates (since 2005). | | | Chairman and Trustee (since 2015), Virtus ETF Trust II (1 fund); Trustee and President (since 2013), Virtus Alternative Solutions Trust (4 portfolios); Director (since 2013), Virtus Global Funds, PLC (2 portfolios); Trustee (since 2012) and President (since 2010), Virtus Variable Insurance Trust (9 portfolios); Trustee and President (since 2011), Virtus Closed-End Funds (3 funds); Trustee (since 2006), Virtus Mutual Funds ([78] portfolios); and Director, President and Chief Executive Officer (since 2006), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc. | |
|
Name, Address and Year of Birth
|
| |
Position(s) Held with the Trust and
Length of Time Served |
| |
Principal Occupation(s) During Past 5 Years
|
|
| Waltman, Francis G. YOB: 1962 | | | Executive Vice President (since 2013), and Senior Vice President (2008 to 2013), Virtus Mutual Fund Complex. | | | Executive Vice President, Product Development (since 2009), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions (since 2006) with Virtus affiliates; Executive Vice President (since 2013), and Senior Vice President (2010 to 2013), Virtus Variable Insurance Trust; Executive Vice President (since 2013), and Senior Vice President (2011 to 2013), Virtus Closed-End Funds; Director (since 2013), Virtus Global Funds PLC; and Executive Vice President (since 2013), Virtus Alternative Solutions Trust. | |
| Bradley, Patrick W. YOB: 1972 | | | Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), and Chief Financial Officer and Treasurer (since 2006), Virtus Mutual Fund Complex | | | Executive Vice President, Fund Services (since 2016), and Senior Vice President, Fund Services (2010 to 2016), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various officer positions (since 2006) with Virtus affiliates; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), and Chief Financial Officer and Treasurer (since 2004), Virtus Variable Insurance Trust; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2012 to 2013) and Treasurer (Chief Financial Officer) (since 2007), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc.; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), and Chief Financial Officer and Treasurer (since 2011), Virtus Closed-End Funds; Vice President and Assistant Treasurer (since 2011), Duff & Phelps Global Utility Income Fund Inc.; Director (since 2013), Virtus Global Funds, PLC; and Executive Vice President (since 2016), Senior Vice President (2013 to 2016), and Chief Financial Officer and Treasurer (since 2013), Virtus Alternative Solutions Trust. | |
| Carr, Kevin J. YOB: 1954 | | | Senior Vice President (since 2013), Vice President (2005 to 2013), and Chief Legal Officer, Counsel and Secretary (since 2005), Virtus Mutual Fund Complex. | | | Senior Vice President (since 2009), and Vice President, Counsel and Secretary (2008 to 2009), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions (since 2005) with Virtus affiliates; Senior Vice President (2013 to 2014), Vice President (2012 to 2013), Assistant Secretary (since 2012), and Secretary and Chief Legal Officer (2005 to 2012), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc.; Assistant Secretary (since 2013), Vice President, Chief Legal Officer, Counsel and Secretary (2010 to 2013), Virtus Variable Insurance Trust; Vice President and Assistant Secretary (since 2011), Duff & Phelps Global Utility Income Fund Inc.; Senior Vice President and Assistant Secretary (2013 to 2014), Vice President and Assistant Secretary (2012 to 2013), and Vice President, Chief Legal Officer, Counsel and Secretary (2011 to 2012), Virtus Closed-End Funds; and Assistant Secretary (since 2013), Virtus Alternative Solutions Trust. | |
| Engberg, Nancy J. YOB: 1956 | | | Vice President and Chief Compliance Officer (since 2011), Virtus Mutual Fund Complex. | | | Vice President (since 2008) and Chief Compliance Officer (2008 to 2011 and since 2016), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various officer positions (since 2003) with Virtus affiliates; Vice President (since 2010) and Chief Compliance Officer (since 2011), Virtus Variable Insurance Trust; Vice President and Chief Compliance Officer (since 2011), Virtus Closed-End | |
|
Name, Address and Year of Birth
|
| |
Position(s) Held with the Trust and
Length of Time Served |
| |
Principal Occupation(s) During Past 5 Years
|
|
| | | | | | | Funds; Vice President and Chief Compliance Officer (since 2012), The Zweig Fund, Inc. and Virtus Global Dividend & Income Fund Inc.; Vice President and Chief Compliance Officer (since 2013), Virtus Alternative Solutions Trust; Chief Compliance Officer (since 2015), ETFis Series Trust I; and Chief Compliance Officer (since 2015), Virtus ETF Trust II. | |
| | | |
Dollar Range of Equity
Securities in a Fund of the Trust (1) |
| |
Aggregate Dollar Range of
Trustee Ownership in all Funds Overseen by Trustee in Family of Investment Companies (2) |
|
| Independent Trustees | | | | ||||
|
Philip McLoughlin
|
| | | ||||
|
Geraldine M. McNamara
|
| | | ||||
|
James M. Oates
|
| | | ||||
|
Richard E. Segerson
|
| | | ||||
|
Ferdinand L.J. Verdonck
|
| | | ||||
| Interested Trustee | | | | ||||
|
George R. Aylward
|
| | | ||||
| | | |
Aggregate Compensation
from Trust |
| |
Total Compensation From
Trust and Fund Complex Paid to Trustees |
| ||||||
| Independent Trustees | | | | | | | | | | | | | |
|
Philip McLoughlin
|
| | | | | | | | | | | | |
|
Geraldine M. McNamara
|
| | | | | | | | | | | | |
|
James M. Oates
|
| | | | | | | | | | | | |
|
Richard E. Segerson
|
| | | | | | | | | | | | |
|
Ferdinand L.J. Verdonck
|
| | | | | | | | | | | | |
| Interested Trustee | | | | ||||||||||
|
George R. Aylward
|
| | | | None | | | | | | None | | |
|
Fund
|
| |
Investment
Advisory Fee |
| |||
|
Ceredex Large-Cap Value Equity Fund
|
| | | | 0.65 % | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | 0.69 % | | |
|
Ceredex Small-Cap Value Equity Fund
|
| | | | 0.82 % | | |
|
Silvant Large-Cap Growth Stock Fund
|
| | | | 0.70 % | | |
|
Silvant Small-Cap Growth Stock Fund
|
| | | | 0.85 % | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | 0.85 % | | |
|
WCM International Equity Fund
|
| | | | 0.85 % | | |
|
Conservative Allocation Strategy Fund
|
| | | | 0.10 % | | |
|
Growth Allocation Strategy Fund
|
| | | | 0.10 % | | |
|
Seix Core Bond Fund
|
| | | | 0.25 % | | |
|
Seix Corporate Bond Fund
|
| | | | 0.40 % | | |
|
Seix Total Return Bond Fund
|
| | | | 0.24 % | | |
|
Seix U.S. Mortgage Fund
|
| | | | 0.40 % | | |
|
Seix Limited Duration Fund
|
| | | | 0.10 % | | |
|
Seix Short-Term Bond Fund
|
| | | | 0.40 % | | |
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | | 0.19 % | | |
|
Seix Ultra-Short Bond Fund
|
| | | | 0.22 % | | |
|
Seix Floating Rate High Income Fund
|
| | | | 0.41 % | | |
|
Seix High Income Fund
|
| | | | 0.54 % | | |
|
Seix High Yield Fund
|
| | | | 0.44 % | | |
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | 0.50 % | | |
|
Fund
|
| |
Investment
Advisory Fee |
| |||
|
Seix High Grade Municipal Bond Fund
|
| | | | 0.50 % | | |
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | 0.49 % | | |
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | 0.50 % | | |
|
Seix Short-Term Municipal Bond Fund
|
| | | | 0.35 % | | |
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | 0.50 % | | |
| | | |
Class A
|
| |
Class C
|
| |
Class R
|
| |
Class I
|
| |
Class IS
|
| |
Class T
|
|
|
Ceredex Large-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | ||
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | ||
|
Ceredex Small-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | ||
|
Silvant Large-Cap Growth Stock Fund
|
| | | | | | | | | | | | | | | | | ||
|
Silvant Small-Cap Growth Stock Fund
|
| | | | | | | | | | | | | | | | | ||
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | | | | | | | | | | | | | | ||
|
WCM International Equity Fund
|
| | | | | | | | | | | | | | | | | ||
|
Conservative Allocation Strategy Fund
|
| | | | | | | | | | | | | | | | | ||
|
Growth Allocation Strategy Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Core Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Corporate Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Total Return Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix U.S. Mortgage Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Limited Duration Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Short-Term Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Ultra-Short Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Floating Rate High Income Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix High Income Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix High Yield Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix High Grade Municipal Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Short-Term Municipal Bond Fund
|
| | | | | | | | | | | | | | | | | ||
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | | | | | | | | | | | | | | ||
| | | |
Gross Advisory
Fee ($) |
| |
Advisory Fee Waived and/or
Expenses Reimbursed ($) |
| |
Net Advisory Fee ($)
|
| ||||||||||||||||||||||||||||||||||||
|
Fund
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| ||||||||||||||||||
|
Ceredex Large-Cap Value Equity Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 2,457,755 | | | | | | 12,906,498 | | | | | | 15,325,869 | | | | | | 14,465,035 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 239,140 | | | | | | 22,901,598 | | | | | | 28,240,095 | | | | | | 26,903,880 | | |
|
Ceredex Small-Cap Value Equity Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 13,731,864 | | | | | | 12,407,608 | | | | | | 8,848,043 | | |
|
Silvant Large-Cap Growth Stock Fund
|
| | | | | | | | | | | | | 0 | | | | | | 60,628 | | | | | | 331,753 | | | | | | 1,940,233 | | | | | | 1,947,536 | | | | | | 1,911,815 | | |
|
Silvant Small-Cap Growth Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 63,957 | | | | | | 1,611,639 | | | | | | 1,349,075 | | | | | | 796,245 | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | | | | | | | | | | 1,088 | | | | | | 0 | | | | | | 17,391 | | | | | | 300,822 | | | | | | 401,832 | | | | | | 281,146 | | |
|
WCM International Equity Fund
|
| | | | | | | | | | | | | 17,209 | | | | | | 3,428 | | | | | | 94,494 | | | | | | 597,604 | | | | | | 234,835 | | | | | | 228,606 | | |
|
Conservative Allocation Strategy Fund
|
| | | | | | | | | | | | | 15,124 | | | | | | 20,530 | | | | | | 57,158 | | | | | | 59,736 | | | | | | 63,645 | | | | | | 65,950 | | |
|
Growth Allocation Strategy Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 92,983 | | | | | | 65,235 | | | | | | 65,048 | | | | | | 58,074 | | |
|
Seix Core Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 726,308 | | | | | | 521,323 | | | | | | 629,875 | | |
|
Seix Corporate Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 8,960 | | | | | | 30,054 | | | | | | 241,714 | | | | | | 144,084 | | | | | | 88,233 | | |
|
Seix Total Return Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 2,074 | | | | | | 2,946,100 | | | | | | 2,591,697 | | | | | | 2,747,820 | | |
|
Seix U.S. Mortgage Fund
|
| | | | | | | | | | | | | 51,363 | | | | | | 49,470 | | | | | | 44,867 | | | | | | 68,760 | | | | | | 54,958 | | | | | | 114,410 | | |
|
Seix Limited Duration Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 7,767 | | | | | | 7,186 | | | | | | 6,650 | | | | | | 6,647 | | |
|
Seix Short-Term Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 2,672 | | | | | | 43,104 | | | | | | 246,437 | | | | | | 193,656 | | | | | | 215,055 | | |
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 4,058,773 | | | | | | 3,341,968 | | | | | | 3,029,253 | | |
|
Seix Ultra-Short Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 281,939 | | | | | | 315,772 | | | | | | 248,510 | | |
|
Seix Floating Rate High Income Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 31,631,285 | | | | | | 30,524,990 | | | | | | 23,465,997 | | |
|
Seix High Income Fund
|
| | | | | | | | | | | | | 0 | | | | | | 2,545,806 | | | | | | 0 | | | | | | 4,783,322 | | | | | | 4,913,079 | | | | | | 4,029,645 | | |
|
Seix High Yield Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 7,071,344 | | | | | | 3,935,731 | | | | | | 2,862,692 | | |
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 309,297 | | | | | | 32,454 | | | | | | 675,650 | | | | | | 640,018 | | | | | | 635,725 | | |
|
Seix High Grade Municipal Bond Fund
|
| | | | | | | | | | | | | 9,150 | | | | | | 93 | | | | | | 43,026 | | | | | | 294,671 | | | | | | 428,128 | | | | | | 573,994 | | |
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 230,521 | | | | | | 3,869,508 | | | | | | 3,313,851 | | | | | | 3,238,901 | | |
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 27,322 | | | | | | 229,364 | | | | | | 183,654 | | | | | | 167,104 | | |
|
Seix Short-Term Municipal Bond Fund
|
| | | | | | | | | | | | | 21,563 | | | | | | 0 | | | | | | 46,670 | | | | | | 81,848 | | | | | | 142,012 | | | | | | 149,091 | | |
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 28,628 | | | | | | 715,780 | | | | | | 621,366 | | | | | | 507,743 | | |
| | | |
Gross Subadvisory
Fee ($) |
| |
Subadvisory Fee and/or
Expenses Reimbursed ($) |
| |
Net Subadvisory Fee ($)
|
| |||||||||||||||||||||||||||||||||||||||||||||
|
Fund
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| |||||||||||||||||||||||||||
|
Ceredex Large-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 6,453,249 | | | | | | 7,662,934 | | | | | | 7,232,517 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 11,450,799 | | | | | | 14,120,048 | | | | | | 13,451,940 | | |
|
Ceredex Small-Cap Value Equity Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 6,865,932 | | | | | | 6,203,804 | | | | | | 4,424,021 | | |
|
Silvant Large-Cap Growth Stock Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 12,330 | | | | | | 970,116 | | | | | | 973,768 | | | | | | 955,907 | | |
|
Silvant Small-Cap Growth Stock Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 805,819 | | | | | | 674,538 | | | | | | 398,123 | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 155,720 | | | | | | 208,007 | | | | | | 145,535 | | |
|
WCM International Equity Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 1,626 | | | | | | 298,802 | | | | | | 117,418 | | | | | | 128,123 | | |
|
Conservative Allocation Strategy Fund
(1)
|
| | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
|
Growth Allocation Strategy Fund
(1)
|
| | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
|
Seix Core Bond Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 435,785 | | | | | | 269,551 | | | | | | 314,938 | | |
|
Seix Corporate Bond Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 4,951 | | | | | | 8,803 | | | | | | 145,028 | | | | | | 74,661 | | | | | | 44,116 | | |
|
Seix Total Return Bond Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 1,767,660 | | | | | | 1,339,917 | | | | | | 1,373,910 | | |
|
Seix U.S. Mortgage Fund
|
| | | | | | | | | | | | | | | | | | | | | | 30,818 | | | | | | 25,578 | | | | | | 8,922 | | | | | | 41,256 | | | | | | 28,326 | | | | | | 57,205 | | |
|
Seix Limited Duration Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 4,311 | | | | | | 3,436 | | | | | | 3,324 | | |
|
Seix Short-Term Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 1,327 | | | | | | 0 | | | | | | 98,575 | | | | | | 94,053 | | | | | | 107,527 | | |
|
Seix U.S. Government Securities Ultra-Short Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 1,623,509 | | | | | | 1,609,937 | | | | | | 1,514,626 | | |
|
Seix Ultra-Short Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 112,776 | | | | | | 153,281 | | | | | | 124,255 | | |
|
Seix Floating Rate High Income Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 18,978,771 | | | | | | 15,873,900 | | | | | | 11,732,998 | | |
|
Seix High Income Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 2,869,993 | | | | | | 2,545,806 | | | | | | 2,014,823 | | |
|
Seix High Yield Fund
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 4,242,807 | | | | | | 2,050,779 | | | | | | 1,431,346 | | |
|
Seix Georgia Tax-Exempt Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 270,260 | | | | | | 309,297 | | | | | | 317,862 | | |
|
Seix High Grade Municipal Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 3,660 | | | | | | 37 | | | | | | 0 | | | | | | 117,869 | | | | | | 208,811 | | | | | | 286,997 | | |
|
Seix Investment Grade Tax-Exempt Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 1,547,803 | | | | | | 1,601,103 | | | | | | 1,619,451 | | |
|
Seix North Carolina Tax-Exempt Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 91,746 | | | | | | 88,625 | | | | | | 83,552 | | |
|
Seix Short-Term Municipal Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 8,625 | | | | | | 0 | | | | | | 6,581 | | | | | | 32,739 | | | | | | 68,843 | | | | | | 74,545 | | |
|
Seix Virginia Intermediate Municipal Bond Fund*
|
| | | | | | | | | | | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 0 | | | | | | 286,312 | | | | | | 299,926 | | | | | | 253,872 | | |
| | First $15 billion | | | [0.10%] | |
| | $15+ billion to $30 billion | | | [0.095%] | |
| | $30+ billion to $50 billion | | | [0.09%] | |
| | Greater than $50 billion | | | [0.085%] | |
| | | |
Administration Fee ($)
(1)
|
| |||||||||||||||
|
Fund
|
| |
2014
|
| |
2015
|
| |
2016
|
| |||||||||
|
Ceredex Large-Cap Value Equity Fund
|
| | | | 193,551 | | | | | | 240,835 | | | | | | 222,768 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | 325,133 | | | | | | 420,290 | | | | | | 393,073 | | |
|
Ceredex Small-Cap Value Equity Fund
|
| | | | 167,938 | | | | | | 157,917 | | | | | | 108,274 | | |
|
Silvant Large-Cap Growth Stock Fund
|
| | | | 28,199 | | | | | | 28,549 | | | | | | 27,498 | | |
|
Silvant Small-Cap Growth Stock Fund
|
| | | | 19,065 | | | | | | 16,298 | | | | | | 9,462 | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | 3,755 | | | | | | 4,853 | | | | | | 3,333 | | |
|
WCM International Equity Fund
|
| | | | 7,582 | | | | | | 2,679 | | | | | | 2,643 | | |
|
Conservative Allocation Strategy Fund
|
| | | | 5,847 | | | | | | 6,526 | | | | | | 6,636 | | |
|
Growth Allocation Strategy Fund
|
| | | | 6,425 | | | | | | 6,672 | | | | | | 5,849 | | |
|
Seix Core Bond Fund
|
| | | | 28,313 | | | | | | 21,394 | | | | | | 25,326 | | |
|
Seix Corporate Bond Fund
|
| | | | 5,907 | | | | | | 3,698 | | | | | | 2,224 | | |
|
Seix Total Return Bond Fund
|
| | | | 119,837 | | | | | | 109,621 | | | | | | 114,491 | | |
|
Seix U.S. Mortgage Fund
|
| | | | 1,429 | | | | | | 1,126 | | | | | | 2,757 | | |
|
Seix Limited Duration Fund
|
| | | | 738 | | | | | | 682 | | | | | | 670 | | |
|
Seix Short-Term Bond Fund
|
| | | | 6,397 | | | | | | 4,959 | | | | | | 5,409 | | |
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | | 212,959 | | | | | | 182,049 | | | | | | 160,974 | | |
|
Seix Ultra-Short Bond Fund
|
| | | | 12,580 | | | | | | 14,709 | | | | | | 11,371 | | |
|
Seix Floating Rate High Income Fund
|
| | | | 770,505 | | | | | | 780,429 | | | | | | 580,141 | | |
|
Seix High Income Fund
|
| | | | 87,126 | | | | | | 93,854 | | | | | | 75,040 | | |
|
Seix High Yield Fund
|
| | | | 163,746 | | | | | | 92,143 | | | | | | 64,797 | | |
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | 13,274 | | | | | | 13,130 | | | | | | 12,800 | | |
|
Seix High Grade Municipal Bond Fund
|
| | | | 5,783 | | | | | | 8,761 | | | | | | 11,548 | | |
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | 77,525 | | | | | | 68,863 | | | | | | 65,959 | | |
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | 4,493 | | | | | | 3,769 | | | | | | 3,365 | | |
|
Seix Short-Term Municipal Bond Fund
|
| | | | 2,334 | | | | | | 4,158 | | | | | | 4,286 | | |
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | 14,092 | | | | | | 12,751 | | | | | | 10,236 | | |
| | First $15 billion | | | | |
| | $15+ billion to $30 billion | | | | |
| | $30+ billion to $50 billion | | | | |
| | Greater than $50 billion] | | | | |
| | | |
Aggregate Underwriting
Commissions ($) |
| |
Amount Retained by the
Distributors ($) |
| |
Amount Reallowed ($)
|
| ||||||||||||||||||||||||||||||||||||
|
Fund
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| |
2014
|
| |
2015
|
| |
2016
|
| ||||||||||||||||||
|
Ceredex Large-Cap Value Equity Fund
|
| | | | | | | | | | | | | 87,268 | | | | | | 138,999 | | | | | | 9,858 | | | | | | 10,977 | | | | | | 20,837 | | | | | | 1,209 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | | | | | | | | | | 234,857 | | | | | | 191,948 | | | | | | 35,321 | | | | | | 33,189 | | | | | | 27,087 | | | | | | 4,702 | | |
|
Ceredex Small-Cap Value Equity Fund
|
| | | | | | | | | | | | | 11,651 | | | | | | 4,124 | | | | | | 5,576 | | | | | | 1,770 | | | | | | 623 | | | | | | 932 | | |
|
Silvant Large-Cap Growth Stock Fund
|
| | | | | | | | | | | | | 21,586 | | | | | | 18,371 | | | | | | 31,904 | | | | | | 3,161 | | | | | | 2,603 | | | | | | 4,379 | | |
|
Silvant Small-Cap Growth Stock Fund
|
| | | | | | | | | | | | | 5,350 | | | | | | 19,463 | | | | | | 747 | | | | | | 632 | | | | | | 2,574 | | | | | | 99 | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | | | | | | | | | | 119,631 | | | | | | 73,402 | | | | | | 11,696 | | | | | | 16,455 | | | | | | 11,878 | | | | | | 1,668 | | |
|
WCM International Equity Fund
|
| | | | | | | | | | | | | 6,116 | | | | | | 14,725 | | | | | | 11,338 | | | | | | 841 | | | | | | 1,913 | | | | | | 1,721 | | |
|
Conservative Allocation Strategy Fund
|
| | | | | | | | | | | | | 11,551 | | | | | | 22,115 | | | | | | 13,439 | | | | | | 2,055 | | | | | | 3,987 | | | | | | 2,562 | | |
|
Growth Allocation Strategy Fund
|
| | | | | | | | | | | | | 2,515 | | | | | | 5,343 | | | | | | 9,765 | | | | | | 387 | | | | | | 753 | | | | | | 1,485 | | |
|
Seix Core Bond Fund
|
| | | | | | | | | | | | | 277 | | | | | | 152 | | | | | | 3,235 | | | | | | 59 | | | | | | 24 | | | | | | 538 | | |
|
Seix Corporate Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 0 | | | | | | 898 | | | | | | 0 | | | | | | 153 | | | | | | 140 | | |
|
Seix Total Return Bond Fund
|
| | | | | | | | | | | | | 1,395 | | | | | | 5,008 | | | | | | 2,967 | | | | | | 224 | | | | | | 806 | | | | | | 536 | | |
|
Seix U.S. Mortgage Fund
|
| | | | | | | | | | | | | 180 | | | | | | 180 | | | | | | 4,959 | | | | | | 20 | | | | | | 0 | | | | | | 90 | | |
|
Seix Short-Term Bond Fund
|
| | | | | | | | | | | | | 4,575 | | | | | | 133 | | | | | | 1,318 | | | | | | 640 | | | | | | 15 | | | | | | 147 | | |
|
Seix Floating Rate High Income Fund
|
| | | | | | | | | | | | | 281,970 | | | | | | 46,427 | | | | | | 86,229 | | | | | | 26,993 | | | | | | 4,184 | | | | | | 8,303 | | |
|
Seix High Income Fund
|
| | | | | | | | | | | | | 72,310 | | | | | | 77,572 | | | | | | 23,385 | | | | | | 11,846 | | | | | | 12,173 | | | | | | 3,867 | | |
|
Seix High Yield Fund
|
| | | | | | | | | | | | | 14,502 | | | | | | 14,520 | | | | | | 17,190 | | | | | | 2,803 | | | | | | 2,555 | | | | | | 3,056 | | |
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 946 | | | | | | 2,647 | | | | | | 5,632 | | | | | | 146 | | | | | | 525 | | | | | | 1,277 | | |
|
Seix High Grade Municipal Bond Fund
|
| | | | | | | | | | | | | 34,226 | | | | | | 69,721 | | | | | | 22,709 | | | | | | 6,367 | | | | | | 11,205 | | | | | | 3,718 | | |
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 5,981 | | | | | | 43,710 | | | | | | 23,868 | | | | | | 983 | | | | | | 6,979 | | | | | | 4,289 | | |
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | | | | | | | | | | 0 | | | | | | 455 | | | | | | 371 | | | | | | 0 | | | | | | 71 | | | | | | 59 | | |
|
Seix Short-Term Municipal Bond Fund
|
| | | | | | | | | | ||||||||||||||||||||||||||||||||||||
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | | | | | | | | | | 4,701 | | | | | | 2,406 | | | | | | 2,297 | | | | | | 793 | | | | | | 382 | | | | | | 374 | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as a
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
[Under $50,000
|
| | | | 4.75 % | | | | | | 4.99 % | | | | | | 4.00 % | | |
|
$50,000 but under $100,000
|
| | | | 4.50 | | | | | | 4.71 | | | | | | 3.75 | | |
|
$100,000 but under $250,000
|
| | | | 3.50 | | | | | | 3.63 | | | | | | 2.75 | | |
|
$250,000 but under $500,000
|
| | | | 2.50 | | | | | | 2.56 | | | | | | 2.00 | | |
|
$500,000 but under $1,000,000
|
| | | | 2.00 | | | | | | 2.04 | | | | | | 1.75 | | |
|
$1,000,000 or more
|
| | | | None | | | | | | None | | | | | | None (1) ] | | |
|
Trade Amount
|
| |
Payout to Dealer
|
| |||
|
$1,000,000 − $2,999,999
|
| | | | 0.50 % | | |
|
$3,000,000 − $49,999,999
|
| | | | 0.25 % | | |
|
$50,000,000 or more
|
| | | | 0.25 %] | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as a
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
[Under $50,000
|
| | | | 5.75 % | | | | | | 6.10 % | | | | | | 5.00 % | | |
|
$50,000 but under $100,000
|
| | | | 4.75 | | | | | | 4.99 | | | | | | 4.25 | | |
|
$100,000 but under $250,000
|
| | | | 3.75 | | | | | | 3.90 | | | | | | 3.25 | | |
|
$250,000 but under $500,000
|
| | | | 2.75 | | | | | | 2.83 | | | | | | 2.25 | | |
|
$500,000 but under $1,000,000
|
| | | | 2.00 | | | | | | 2.04 | | | | | | 1.75 | | |
|
$1,000,000 or more
|
| | | | None | | | | | | None | | | | | | None (1) ] | | |
|
Trade Amount
|
| |
Payout to Dealer
|
| |||
|
$1,000,000 − $2,999,999
|
| | | | 0.75 % | | |
|
$3,000,000 − $49,999,999
|
| | | | 0.25 % | | |
|
$50,000,000 or more
|
| | | | 0.25 %] | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
Under $250,000
|
| | | | 2.50 % | | | | | | 2.56 % | | | | | | 2.50 % | | |
|
$250,000 but under $500,000
|
| | | | 2.00 % | | | | | | 2.04 % | | | | | | 2.00 % | | |
|
$500,000 but under $1,000,000
|
| | | | 1.50 % | | | | | | 1.52 % | | | | | | 1.50 % | | |
|
$1,000,000 or more
|
| | | | 1.00 % | | | | | | 1.01 % | | | | | | 1.00 % | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as a
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
[Under $50,000
|
| | | | 2.50 % | | | | | | 2.56 % | | | | | | 2.25 % | | |
|
$50,000 but under $100,000
|
| | | | 2.25 | | | | | | 2.30 | | | | | | 2.00 | | |
|
$100,000 but under $250,000
|
| | | | 2.00 | | | | | | 2.04 | | | | | | 1.75 | | |
|
$250,000 but under $500,000
|
| | | | 1.75 | | | | | | 1.78 | | | | | | 1.50 | | |
|
$500,000 but under $1,000,000
|
| | | | 1.50 | | | | | | 1.52 | | | | | | 1.25 | | |
|
$1,000,000 or more
|
| | | | None | | | | | | None | | | | | | None (1) ] | | |
|
Trade Amount
|
| |
Payout to Dealer
|
| |||
|
$1,000,000 − $2,999,999
|
| | | | 0.50 % | | |
|
$3,000,000 − $49,999,999
|
| | | | 0.25 % | | |
|
$50,000,000 or more
|
| | | | 0.25 %] | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as a
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
[Under $50,000
|
| | | | 4.75 % | | | | | | 4.99 % | | | | | | 4.00 % | | |
|
$50,000 but under $100,000
|
| | | | 4.50 | | | | | | 4.71 | | | | | | 3.75 | | |
|
$100,000 but under $250,000
|
| | | | 3.50 | | | | | | 3.63 | | | | | | 2.75 | | |
|
$250,000 but under $500,000
|
| | | | 2.50 | | | | | | 2.56 | | | | | | 2.00 | | |
|
$500,000 but under $1,000,000
|
| | | | 2.00 | | | | | | 2.04 | | | | | | 1.75 | | |
|
$1,000,000 or more
|
| | | | None | | | | | | None | | | | | | None (1) ] | | |
|
Trade Amount
|
| |
Payout to Dealer
|
| |||
|
$1,000,000 − $2,999,999
|
| | | | 0.50 % | | |
|
$3,000,000 − $49,999,999
|
| | | | 0.25 % | | |
|
$50,000,000 or more
|
| | | | 0.25 % | | |
|
Amount of Transaction at Offering Price
|
| |
Sales Charge as
Percentage of Offering Price |
| |
Sales Charge as a
Percentage of Amount Invested |
| |
Dealer Discount as a
Percentage of Offering Price |
| |||||||||
|
Under $250,000
|
| | | | 2.50 % | | | | | | 2.56 % | | | | | | 2.50 % | | |
|
$250,000 but under $500,000
|
| | | | 2.00 % | | | | | | 2.04 % | | | | | | 2.00 % | | |
|
$500,000 but under $1,000,000
|
| | | | 1.50 % | | | | | | 1.52 % | | | | | | 1.50 % | | |
|
$1,000,000 or more
|
| | | | 1.00 % | | | | | | 1.01 % | | | | | | 1.00 % | | |
|
Fund
|
| |
Rule 12b-1 Fees Paid ($)
|
| |
Rule 12b-1 Fees Waived ($)
|
|
|
Ceredex Large-Cap Value Equity Fund
|
| | | ||||
|
Ceredex Mid-Cap Value Equity Fund
|
| | | ||||
|
Ceredex Small-Cap Value Equity Fund
|
| | | ||||
|
Silvant Large-Cap Growth Stock Fund
|
| | | ||||
|
Silvant Small-Cap Growth Stock Fund
|
| | | ||||
|
Zevenbergen Innovative Growth Stock Fund
|
| | | ||||
|
WCM International Equity Fund
|
| | | ||||
|
Conservative Allocation Strategy Fund
|
| | | ||||
|
Growth Allocation Strategy Fund
|
| | | ||||
|
Seix Core Bond Fund
|
| | | ||||
|
Seix Corporate Bond Fund
|
| | | ||||
|
Seix Total Return Bond Fund
|
| | | ||||
|
Seix U.S. Mortgage Fund
|
| | | ||||
|
Seix Limited Duration Fund
|
| | | ||||
|
Seix Short-Term Bond Fund
|
| | | ||||
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | ||||
|
Seix Ultra-Short Bond Fund
|
| | | ||||
|
Seix Floating Rate High Income Fund
|
| | | ||||
|
Seix High Income Fund
|
| | | ||||
|
Seix High Yield Fund
|
| | | ||||
|
Fund
|
| |
Rule 12b-1 Fees Paid ($)
|
| |
Rule 12b-1 Fees Waived ($)
|
|
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | ||||
|
Seix High Grade Municipal Bond Fund
|
| | | ||||
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | ||||
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | ||||
|
Seix Short-Term Municipal Bond Fund
|
| | | ||||
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | ||||
| | Ceredex Large-Cap Value Equity Fund | | | Mills Riddick, CFA (since 1995) | |
| | Ceredex Mid-Cap Value Equity Fund | | | Don Wordell, CFA (since 2001) | |
| | Ceredex Small-Cap Value Equity Fund | | | Brett Barner, CFA (since 1994) | |
| | Silvant Large-Cap Growth Stock Fund | | |
Sandeep Bhatia, PhD, CFA (since 2011)
Michael A. Sansoterra (since 2007) |
|
| | Silvant Small-Cap Growth Stock Fund | | |
Sandeep Bhatia, PhD, CFA (since 2011)
Michael A. Sansoterra (since 2007) |
|
| | Zevenbergen Innovative Growth Stock Fund | | |
[Brooke de Boutray (since 2004)
Joseph Dennison (since 2015) Leslie Tubbs (since 2004) Anthony Zackery (since 2015) Nancy Zevenbergen (since 2004)] |
|
| | WCM International Equity Fund | | |
[Paul R. Black (since 2015)
Peter J. Hunkel (since 2015) Michael B. Trigg (since 2015) Kurt R. Winrich, CFA (since 2015)] |
|
| | Conservative Allocation Strategy Fund | | |
Peter Batchelar (since 2017)
Thomas Wagner (since 2017) |
|
| | Growth Allocation Strategy Fund | | |
Peter Batchelar (since 2017)
Thomas Wagner (since 2017) |
|
| | Seix Core Bond Fund | | |
Carlos Catoya (since 2015)
James F. Keegan (since 2008) Michael Rieger (since 2007) Perry Troisi (since 2004) Jonathan Yozzo (since 2015) |
|
| | Seix Corporate Bond Fund | | |
Carlos Catoya (since 2015)
James F. Keegan (since 2008) Perry Troisi (since 2004) Jonathan Yozzo (since 2015) |
|
| | Seix Floating Rate High Income Fund | | |
Vincent Flanagan (since 2011)
George Goudelias (since 2006) |
|
| | Seix Georgia Tax-Exempt Bond Fund | | | Chris Carter (since 2003) | |
| | Seix High Grade Municipal Bond Fund | | | Ronald Schwartz (since 1994) | |
| | Seix High Income Fund | | |
James FitzPatrick (since 2013)
Michael Kirkpatrick (since 2011) |
|
| | Seix High Yield Fund | | |
James FitzPatrick (since 2013)
Michael Kirkpatrick (since 2007) |
|
| | Seix Investment Grade Tax-Exempt Bond Fund | | | Ronald Schwartz (since 1992) | |
| | Seix Limited Duration Fund | | |
Seth Antiles (since 2009)
Carlos Catoya (since 2015) James F. Keegan (since 2008) Michael Rieger (since 2007) Perry Troisi (since 2002) Jonathan Yozzo (since 2015) |
|
| | Seix North Carolina Tax-Exempt Bond Fund | | | Chris Carter (since 2005) | |
| | Seix Short-Term Bond Fund | | |
Carlos Catoya (since 2015)
James F. Keegan (since 2014) Michael Rieger (since 2014) Perry Troisi (since 2014) Jonathan Yozzo (since 2015) |
|
| | Seix Short-Term Municipal Bond Fund | | |
Ronald Schwartz (since 2011)
Dusty Self (since 2011) |
|
| | Seix Total Return Bond Fund | | |
Seth Antiles (since 2007)
Carlos Catoya (since 2015) James F. Keegan (since 2008) Michael Rieger (since 2007) Perry Troisi (since 2002) Jonathan Yozzo (since 2015) |
|
| | Seix Ultra-Short Bond Fund | | |
Carlos Catoya (since 2015)
James F. Keegan (since 2014) Michael Rieger (since 2014) Perry Troisi (since 2014) Jonathan Yozzo (since 2015) |
|
| | Seix U.S. Government Securities Ultra-Short Bond Fund | | |
James F. Keegan (since 2014)
Michael Rieger (since 2014) Perry Troisi (since 2014) |
|
| | Seix U.S. Mortgage Fund | | |
Seth Antiles (since 2009)
Carlos Catoya (since 2015) James F. Keegan (since 2008) Michael Rieger (since 2007) Perry Troisi (since 2007) Jonathan Yozzo (since 2015) |
|
| | Seix Virginia Intermediate Municipal Bond Fund | | | Chris Carter (since 2011) | |
|
Portfolio Manager
|
| |
Funds Managed
|
| |
Dollar Range of Equity Securities
Beneficially Owned in Fund Managed |
|
|
Seth Antiles
|
| | | ||||
|
Brett Barner
|
| | | ||||
|
Peter Batchelar
|
| | | ||||
|
Sandeep Bhatia
|
| | | ||||
|
Paul R. Black
|
| | | ||||
|
Brooke de Boutray
|
| | | ||||
|
Christopher Carter
|
| | | ||||
|
Carlos Catoya
|
| | | ||||
|
Joseph Dennison
|
| | | ||||
|
James FitzPatrick
|
| | | ||||
|
Vince Flanagan
|
| | | ||||
|
George Goudelias
|
| | | ||||
|
Peter J. Hunkel
|
| | | ||||
|
James F. Keegan
|
| | | ||||
|
Michael Kirkpatrick
|
| | | ||||
|
Mills Riddick
|
| | | ||||
|
Michael Rieger
|
| | | ||||
|
Michael A. Sansoterra
|
| | | ||||
|
Ronald Schwartz
|
| | | ||||
|
Dusty Self
|
| | | ||||
|
Michael B. Trigg
|
| | | ||||
|
Perry Troisi
|
| | | ||||
|
Leslie Tubbs
|
| | | ||||
|
Thomas Wagner
|
| | | ||||
|
Kurt R. Winrich
|
| | | ||||
|
Don Wordell
|
| | | ||||
|
Jonathan Yozzo
|
| | | ||||
|
Anthony Zackery
|
| | | ||||
|
Nancy Zevenbergen
|
| | | ||||
| | | |
Aggregate Amount of Brokerage Commissions ($)
|
| |||||||||||||||
|
Fund
|
| |
2014
|
| |
2015
|
| |
2016
|
| |||||||||
|
Ceredex Large Cap Value Equity Fund
|
| | | | 1,808,184 | | | | | | 1,758,550 | | | | | | 1,658,482 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | | | 4,895,206 | | | | | | 4,591,960 | | | | | | 5,129,261 | | |
|
Ceredex Small Cap Value Equity Fund
|
| | | | 1,263,695 | | | | | | 764,449 | | | | | | 817,249 | | |
|
Conservative Allocation Strategy Fund
|
| | | | 2,028 | | | | | | 1,760 | | | | | | 7,951 | | |
|
Growth Allocation Strategy Fund
|
| | | | 2,505 | | | | | | 2,821 | | | | | | 10,488 | | |
|
Zevenbergen Innovative Growth Stock Fund
|
| | | | 33,002 | | | | | | 30,478 | | | | | | 26,842 | | |
|
WCM International Equity Fund
|
| | | | 129,234 | | | | | | 36,694 | | | | | | 90,444 | | |
|
Seix Core Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Corporate Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Floating Rate High Income Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Georgia Tax-Exempt Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix High Grade Municipal Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix High Income Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix High Yield Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Investment Grade Tax-Exempt Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix North Carolina Tax-Exempt Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Short-Term Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Short-Term Municipal Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Total Return Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix U.S. Government Securities Ultra-Short Bond Fund
|
| | | | 27,873 | | | | | | 0 | | | | | | 0 | | |
|
Seix U.S. Mortgage Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Seix Ultra-Short Bond Fund
|
| | | | 2,070 | | | | | | 0 | | | | | | 0 | | |
|
Seix Virginia Intermediate Municipal Bond Fund
|
| | | | 0 | | | | | | 0 | | | | | | 0 | | |
|
Silvant Large Cap Growth Stock Fund
|
| | | | 81,360 | | | | | | 48,881 | | | | | | 30,465 | | |
|
Silvant Small Cap Growth Stock Fund
|
| | | | 344,975 | | | | | | 135,651 | | | | | | 179,882 | | |
|
Fund
|
| |
Broker/Dealer
|
| |
Value ($)
|
| |||
|
Silvant Large Cap Growth Stock Fund
|
| | State Street Bank & Trust Co. | | | | | 331,142 | | |
| | | | Morgan Stanley | | | | | 3,051,095 | | |
|
Ceredex Large Cap Value Equity Fund
|
| | JPMorgan Chase & Co. | | | | | 57,161,394 | | |
| | | | Citigroup, Inc. | | | | | 34,516,813 | | |
| | | | State Street Bank & Trust Co. | | | | | 95,041,854 | | |
| | | | Morgan Stanley | | | | | 42,893,200 | | |
| | | | Wells Fargo & Company | | | | | 74,058,262 | | |
|
Ceredex Mid-Cap Value Equity Fund
|
| | State Street Bank & Trust Co. | | | | | 90,734,440 | | |
| | | | BB&T Corp. | | | | | 34,600,800 | | |
|
Silvant Small Cap Growth Stock Fund
|
| | State Street Bank & Trust Co. | | | | | 333,280 | | |
| | | | Evercore Partners | | | | | 501,251 | | |
|
Ceredex Small Cap Value Equity Fund
|
| | State Street Bank & Trust Co. | | | | | 1,252.55 | | |
| | | | Evercore Partners | | | | | 19,857,510 | | |
| | | | Oppenheimer Holdings Inc. | | | | | 235,280 | | |
|
Growth Allocation Strategy Fund
|
| | State Street Bank & Trust Co. | | | | | 1,646,538 | | |
|
Conservative Allocation Strategy Fund
|
| | State Street Bank & Trust Co. | | | | | 1,686,970 | | |
|
Seix Core Bond Fund
|
| | Citigroup, Inc. | | | | | 1,054,890 | | |
| | | | Goldman Sachs | | | | | 1,127,214 | | |
| | | | Bank of America Corp. | | | | | 1,606,332 | | |
| | | | U.S. Bancorp. | | | | | 1,071,356 | | |
| | | | JPMorgan Chase & Co. | | | | | 829,510 | | |
| | | | Morgan Stanley | | | | | 1,931,589 | | |
| | | | Wells Fargo | | | | | 948,973 | | |
| | | | Lloyds Bank | | | | | 600,124 | | |
| | | | Credit Suisse Group | | | | | 872,856 | | |
|
Seix Corporate Bond Fund
|
| | U.S. Bancorp | | | | | 319,315 | | |
| | | | Morgan Stanley | | | | | 393,281 | | |
| | | | JPMorgan Chase & Co. | | | | | 225,772 | | |
| | | | Wells Fargo | | | | | 247,223 | | |
| | | | Goldman Sachs | | | | | 189,970 | | |
| | | | TD Securities | | | | | 374,363 | | |
| | | | Bank of America Corp. | | | | | 212,219 | | |
|
Seix Short-Term Bond Fund
|
| | JPMorgan Chase & Co. | | | | | 587,300 | | |
| | | | Citigroup, Inc. | | | | | 541,222 | | |
| | | | Credit Suisse Group | | | | | 842,602 | | |
| | | | Lloyds Bank | | | | | 541,749 | | |
| | | | Goldman Sachs | | | | | 839,682 | | |
| | | | Wells Fargo | | | | | 741,312 | | |
|
Fund
|
| |
Broker/Dealer
|
| |
Value ($)
|
| |||
|
Seix Total Return Bond Fund
|
| | JPMorgan Chase & Co. | | | | | 3,771,599 | | |
| | | | Morgan Stanley | | | | | 10,198,738 | | |
| | | | U.S. Bancorp | | | | | 4,981,362 | | |
| | | | Bank of America Corp. | | | | | 2,060,378 | | |
| | | | Wells Fargo | | | | | 3,935,412 | | |
| | | | Goldman Sachs | | | | | 2,986,696 | | |
| | | | Credit Suisse Group | | | | | 3,350,096 | | |
| | | | Lloyds Bank | | | | | 2,240,461 | | |
|
Seix Ultra-Short Bond Fund
|
| | JPMorgan Chase & Co. | | | | | 1,210,385 | | |
| | | | Bank of America Corp. | | | | | 1,437,897 | | |
| | | | Goldman Sachs | | | | | 1,876,684 | | |
| | | | Wells Fargo | | | | | 861,525 | | |
| | | | Lloyds Bank | | | | | 1,397,772 | | |
cd
|
Control Person
Name and Address |
| |
Fund
|
| |
Percentage
(%) of Fund Outstanding |
|
| | | | | | |
%
|
|
| | | | | | |
%
|
|
| | | | | | |
%
|
|
VIRTUS ASSET TRUST
PART C—OTHER INFORMATION
Item 28. Exhibits
| (a) | Amended and Restated Agreement and Declaration of Trust dated January 6, 2017 (to be filed by amendment). |
| (b) | Bylaws. |
| 1. | Amended and Restated By-Laws of Registrant adopted November 16, 2005, filed via EDGAR (as Exhibit b.1) with Post-Effective Amendment No. 19 (File No. 333-08045) on April 23, 2007, and incorporated herein by reference. |
| 2. | Amendment No. 1 to the Amended and Restated By-Laws of the Registrant, dated August 23, 2006, filed via EDGAR (as Exhibit b.2) with Post-Effective Amendment No. 19 (File No. 333-08045) on April 23, 2007, and incorporated herein by reference. |
| (c) | Instruments Defining Rights of Security Holders – Reference is made to Registrant’s Amended and Restated Agreement and Declaration of Trust and Bylaws. See Exhibits a and b. |
| (d) | Investment Advisory Contracts. |
| 1. | Investment Advisory Agreement between the Registrant and Virtus Fund Advisers, LLC (the “Adviser”) effective ________ (to be filed by amendment). |
| 2 | Subadvisory Agreement between the Adviser and Ceredex Value Advisors LLC (“Ceredex”) dated ___________, on behalf of Virtus Ceredex Large-Cap Value Equity Fund, Virtus Ceredex Mid-Cap Value Equity Fund and Virtus Ceredex Small-Cap Value Equity Fund (to be filed by amendment). |
| C- 1 |
| 3. | Subadvisory Agreement between the Adviser and Seix Investment Advisors, LLC (“Seix”) dated ____________, on behalf of Virtus Seix Core Bond Fund, Virtus Seix Corporate Bond Fund, Virtus Seix Total Return Bond Fund, Virtus Seix U.S. Mortgage Fund, Virtus Seix Limited Duration Fund, Virtus Seix Short-Term Bond Fund, Virtus Seix U.S. Government Securities Ultra-Short Bond Fund, Virtus Seix Ultra-Short Bond Fund, Virtus Seix Floating Rate High Income Fund, Virtus Seix High Income Fund, Virtus Seix High Yield Fund, Virtus Seix Georgia Tax-Exempt Bond Fund, Virtus Seix High Grade Municipal Bond Fund, Virtus Seix Investment Grade Tax-Exempt Bond Fund, Virtus Seix North Carolina Tax-Exempt Bond Fund, Virtus Seix Short-Term Municipal Bond Fund and Virtus Seix Virginia Intermediate Municipal Bond Fund (to be filed by amendment). |
| 4. | Subadvisory Agreement between the Adviser and Silvant Capital Management, LLC (“Silvant”) dated ____________, on behalf of Virtus Silvant Large-Cap Growth Stock Fund and Virtus Silvant Small-Cap Growth Stock Fund (to be filed by amendment). |
| 5. | Subadvisory Agreement between the Adviser and [WCM Investment Management (“WCM”)], dated ____________, on behalf of Virtus WCM International Equity Fund (to be filed by amendment). |
| 6. | Subadvisory Agreement between the Adviser and [Zevenbergen Capital Investments LLC (“Zevenbergen”)] dated ____________, on behalf of Virtus Zevenbergen Innovative Growth Stock Fund (to be filed by amendment). |
| (e) | Underwriting Agreement. |
| 1. | Underwriting Agreement between Registrant and [VP Distributors, LLC (“VP Distributors”)] (to be filed by amendment). |
| 2. | Form of Sales Agreement between [VP Distributors] and dealers (dated _____) (to be filed by amendment). |
| (f) | None. |
| (g) | Custodian Agreement. |
| 1. | Master Custody Agreement between Registrant and [State Street Bank and Trust Company (“State Street”)] dated __________ (to be filed by amendment). |
| (h) | Other Material Contracts. |
| 1. | Transfer Agency and Service Agreement between Registrant and [Virtus Fund Services, LLC (“Virtus Fund Services”)] dated __________ (to be filed by amendment). |
| C- 2 |
| 2. | Sub-Transfer Agency and Shareholder Services Agreement by and among Registrant, Virtus Fund Services and [Boston Financial Data Services, Inc. (“BFDS”)] dated _____________ (to be filed by amendment). |
| 3. | Administration Agreement between Registrant and [Virtus Fund Services] dated __________ (to be filed by amendment). |
| 4. | Sub-Administration and Accounting Services Agreement among Registrant, [Virtus Fund Services, LLC] and [BFDS] dated __________ (to be filed by amendment). |
| 5. | Securities Lending Authorization Agreement between Registrant and [State Street] dated __________ (to be filed by amendment). |
| 6. | Expense Limitation Agreement between Registrant and the Adviser, dated ____________ (to be filed by amendment). |
| (i) | Legal Opinion. |
| 1. | *Opinion of counsel as to legality of shares dated January 26, 2017 is filed herewith. |
| 2. | *Consent of Sullivan & Worcester LLP is filed herewith. |
| (j) | Other Opinions. |
| 1. | Consent of Independent Registered Public Accounting Firm (to be filed by amendment). |
| (k). | Not applicable. |
| (l) | None. |
| (m) | Rule 12b-1 Plans. |
| 1. | Class A Shares Amended and Restated Distribution Plan of Registrant Pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the “1940 Act”), effective ___________ (to be filed by amendment). |
| 2. | Class C Shares Amended and Restated Distribution Plan of Registrant Pursuant to Rule 12b-1 under the 1940 Act, effective ____________ (to be filed by amendment). |
| 3. | [Class T Shares] Distribution Plan of Registrant Pursuant to Rule 12b-1 under the 1940 Act, effective ____________ (to be filed by amendment). |
| (n) | [2017 Amended and Restated Rule 18f-3 Multi-Class Plan, adopted __________, 2017] (to be filed by amendment). |
| C- 3 |
| (o) | Reserved. |
| (p) | Code of Ethics. |
| 1. | Code of Ethics of the Adviser (to be filed by amendment). |
| 2. | Code of Ethics of Ceredex Value Advisors LLC (to be filed by amendment). |
| 3. | Code of Ethics of Seix Investment Advisors, LLC (to be filed by amendment). |
| 4. | Code of Ethics of Silvant Capital Management LLC (to be filed by amendment). |
| 5. | Code of Ethics of [WCM Investment Management] (to be filed by amendment). |
| 6. | Code of Ethics of [Zevenbergen Capital Investments LLC] (to be filed by amendment). |
| (q) | Power of Attorney. |
| 1. | Power of Attorney for Philip R. McLoughlin, Geraldine M. McNamara, James M. Oates, Richard E. Segerson and Ferdinand L. J. Verdonck, dated November 15, 2006, filed via EDGAR with Post-Effective Amendment No. 19 (File No. 333-08045) on April 23, 2007, and incorporated herein by reference. |
| C- 4 |
* Filed herewith
| Item 29. | Persons Controlled by or Under Common Control with the Fund |
None.
| Item 30. | Indemnification |
Article VII of the Agreement and Declaration of Trust empowers the Trustees of the Trust, to the full extent permitted by law, to purchase, with Trust assets, insurance for indemnification from liability and to pay for all expenses reasonably incurred or paid or expected to be paid by a Trustee or officer in connection with any claim, action, suit or proceeding in which he or she becomes involved by virtue of his or her capacity or former capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that such person is and other amounts or was an agent of the Trust, against expenses, judgments, fines, settlement and other amounts actually and reasonable incurred in connection with such proceeding if that person acted in good faith and reasonably believed his or her conduct to be in the best interests of the Trust. Indemnification will not be provided in certain circumstances, however, including instances of willful misfeasance, bad faith, gross negligence, and reckless disregard of the duties involved in the conduct of the particular office involved.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to the Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission ("SEC") such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
| C- 5 |
| Item 31. | Business and Other Connections of Investment Adviser and Subadvisers |
See “Management of the Funds” in the Prospectus and “Investment Advisory and Other Services” and “Management of the Trust” in the Statement of Additional Information which is included in this Post-Effective Amendment. For information as to the business, profession, vocation or employment of a substantial nature of directors and officers of the Adviser and Subadvisers, reference is made to the Adviser’s and each Subadviser’s current Form ADV filed under the Investment Advisers Act of 1940, and incorporated herein by reference.
| Adviser |
SEC File
No.: |
|
| The Adviser | 801-23163 | |
| Ceredex | 801-68739 | |
| Seix | 801-68743 | |
| Silvant | 801-68741 | |
| [WCM | 801-11916] | |
| [Zevenbergen | 801-62477] |
| Item 32. | Principal Underwriter |
| (a) | VP Distributors, LLC serves as the principal underwriter for the following registrants: |
Virtus Alternative Solutions Trust, [Virtus Asset Trust], Virtus Equity Trust, Virtus Opportunities Trust, Virtus Variable Insurance Trust and Virtus Retirement Trust.
| (b) | Directors and executive officers of VP Distributors, 100 Pearl Street, Hartford, CT 06103 are as follows: |
|
Name
and Principal
Business Address |
Positions and Offices with Distributor |
Positions
and Offices
with Registrant |
||
| George R. Aylward | Executive Vice President | President and Trustee | ||
| Kevin J. Carr | Vice President, Counsel and Secretary | Senior Vice President, Chief Legal Officer, Counsel and Secretary | ||
| Nancy J. Engberg | Vice President and Assistant Secretary | Vice President and Chief Compliance Officer | ||
| David Hanley | Vice President and Treasurer | None | ||
| Barry Mandinach | President | None | ||
| David C. Martin | Vice President and Chief Compliance Officer | None | ||
| Francis G. Waltman | Executive Vice President | Executive Vice President |
| (c) | To the best of the Registrant’s knowledge, no commissions or other compensation was received by any principal underwriter who is not an affiliated person of the Registrant or an affiliated person of |
| C- 6 |
such affiliated person, directly or indirectly, from the Registrant during the Registrant’s last fiscal year.
| Item 33. | Location of Accounts and Records |
Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the 1940 Act and the Rules promulgated thereunder include:
| Secretary of the Trust: | Principal Underwriter: | |
|
Kevin J. Carr, Esq. 100 Pearl Street Hartford, CT 06103 |
[VP Distributors, LLC 100 Pearl Street Hartford, CT 06103] |
|
| Investment Adviser: | Custodian: | |
|
RidgeWorth Capital Management LLC (to be renamed Virtus Fund Advisers, LLC) [3333 Piedmont Road, Suite 1500] [Atlanta, GA 30305] |
[State Street Bank and Trust Company One Lincoln Street Boston, MA 02111] |
|
| Administrator & Transfer Agent: | ||
|
[Virtus Fund Services, LLC 100 Pearl Street Hartford, CT 06103] |
||
| Fund Accountant, Sub-Administrator, Sub-Transfer Agent and Dividend Dispersing Agent: | ||
|
[Boston Financial Data Services, Inc. 2000 Crown Colony Drive Quincy, MA 02169] |
||
|
Subadviser to: Ceredex Large-Cap Value Equity Fund, Ceredex Mid-Cap Value Equity Fund and Ceredex Small-Cap Value Equity Fund Ceredex Value Advisors LLC 301 East Pine Street, Suite 500 Orlando, Florida 32801
|
Subadviser to: WCM International Equity Fund [WCM Investment Management 281 Brooks Street Laguna Beach, California 92651] |
|
|
Subadviser to: Seix Core Bond Fund, Seix Corporate Bond Fund, Seix Total Return Bond Fund, Seix U.S. Mortgage Fund, Seix Limited Duration Fund, Seix Short-Term Bond Fund, Seix U.S. Government Securities Ultra-Short Bond Fund, Seix Ultra-Short Bond Fund, Seix Floating Rate High Income Fund, Seix High Income Fund, Seix High Yield Fund, Seix Georgia Tax-Exempt Bond Fund, Seix High Grade Municipal Bond Fund, Seix Investment Grade Tax-Exempt Bond Fund, Seix North Carolina Tax-Exempt Bond Fund, Seix Short-Term Municipal Bond Fund and Seix Virginia Intermediate Municipal Bond Fund Seix Investment Advisors, LLC One Maynard Drive, Suite 3200 Park Ridge, New Jersey 07656
Subadviser to: Silvant Large-Cap Growth Stock Fund and Silvant Small-Cap Growth Stock Fund Silvant Capital Management LLC 3333 Piedmont Road, Suite 1500 Atlanta, Georgia 30305 |
Subadviser to: Zevenbergen Innovative Growth Stock Fund [Zevenbergen Capital Investments LLC 601 Union Street, Suite 4600 Seattle, Washington 98101]
|
| C- 7 |
| Item 34. | Management Services |
None.
| Item 35. | Undertakings |
None.
| C- 8 |
| Item 28. | Exhibits |
| Exhibit | Item | |
| i.1 | Opinion of counsel as to legality of shares dated January 26, 2017 | |
| i.2 | Consent of Sullivan & Worcester LLP |
| C- 9 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Hartford and the State of Connecticut on the 27th day of January, 2017.
| VIRTUS ASSET TRUST | ||
| By: | /s/ George R. Aylward | |
| George R. Aylward | ||
| President | ||
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities indicated on the 27th day of January, 2017.
| Signature | Title | |
| /s/ George R. Aylward | ||
|
George R. Aylward |
Trustee and President (principal executive officer) | |
| /s/ W. Patrick Bradley | ||
|
W. Patrick Bradley |
Chief Financial Officer and Treasurer (principal financial and accounting officer) |
|
| /s/ Philip R. McLoughlin | ||
|
Philip R. McLoughlin* |
Trustee and Chairman | |
| /s/ Geraldine M. McNamara | ||
|
Geraldine M. McNamara* |
Trustee | |
| /s/ James M. Oates | ||
|
James M. Oates* |
Trustee | |
| /s/ Richard E. Segerson | ||
|
Richard E. Segerson* |
Trustee | |
| /s/ Ferdinand L.J. Verdonck | ||
|
Ferdinand L.J. Verdonck* |
Trustee |
| *By: | /s/ George R. Aylward | |
| *George R. Aylward, Attorney-in-Fact, pursuant to a power of attorney |
| C- 10 |
