UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22906
Virtus Alternative Solutions Trust
(Exact name of registrant as specified in charter)
101 Munson Street
Greenfield, MA 01301
(Address of principal executive offices) (Zip code)
Jennifer Fromm, Esq.
Vice President, Chief Legal Officer, Counsel and Secretary for Registrant
One Financial Plaza
Hartford, CT 06103-4506
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 243-1574
Date of fiscal year end: October 31
Date of reporting period: April 30, 2022
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
| Item 1. | Reports to Stockholders. |
| (a) | The Report to Shareholders is attached herewith. |
| (b) | Not applicable. |
April 30, 2022
| Virtus Duff & Phelps Select MLP and Energy Fund |
| Virtus KAR Long/Short Equity Fund |
Not
FDIC Insured • No Bank Guarantee • May Lose Value
Table of Contents
|
|
1 | |
|
|
2 | |
|
|
4 | |
|
|
5 | |
| Fund | Schedule
of Investments | |
|
|
6 | |
|
|
8 | |
|
|
10 | |
|
|
12 | |
|
|
13 | |
|
|
14 | |
|
|
16 | |
|
|
25 | |
Proxy Voting Procedures and Voting Record
(Form N-PX)
The subadvisers
vote proxies, if any, relating to portfolio securities in accordance with procedures that have been approved by the Board of Trustees of the Trust (“Trustees”, or the “Board”). You may obtain a description of these
procedures, along with information regarding how the Funds voted proxies during the most recent 12-month period ended June 30, free of charge, by calling toll-free 1-800-243-1574. This information is also available through the Securities and
Exchange Commission’s (the “SEC”) website at https://www.sec.gov.
PORTFOLIO
HOLDINGS INFORMATION
The Trust files a
complete schedule of portfolio holdings for each Fund with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT-P. Form N-PORT-P is available on the SEC’s website at https://www.sec.gov.
This report is not authorized for distribution to prospective
investors in either Fund presented in this book unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, the respective Fund’s record and other pertinent information.
MESSAGE TO SHAREHOLDERS
To Virtus Alternative Solutions Trust Shareholders:
I
am pleased to present this semiannual report, which reviews the performance of your Fund for the six months ended April 30, 2022.
During
the six-month period, market volatility increased as investors contended with higher inflation, rising interest rates, and efforts by the Federal Reserve (Fed) to tighten monetary policy. Russia’s invasion of Ukraine in late February added to
the uncertainty and led to higher energy and food costs.
Domestic equity indexes struggled during the
six months ended April 30, 2022. U.S. large-capitalization stocks were down 9.65%, as measured by the S&P 500® Index, and small-cap stocks lost 18.38%, as measured by
the Russell 2000® Index. Losses were felt more broadly in international equities, with developed markets, as measured by the MSCI EAFE® Index (net), declining 11.80%, while emerging markets, as measured by the MSCI Emerging Markets Index (net), were down 14.15%.
In fixed income markets, the yield on the 10-year Treasury
rose to 2.89% on April 30, 2022, from 1.55% on October 31, 2021, as the Fed began to raise interest rates in March to tackle inflation. The broader U.S. fixed income market, as represented by the Bloomberg U.S. Aggregate Bond Index, was down 9.47%
for the six-month period, while non-investment grade bonds, as measured by the Bloomberg U.S. Corporate High Yield Bond Index, lost 7.41%.
When markets are volatile, it is best to focus on your
long-term goals rather than the headlines. Your financial advisor can help. Please call our customer service team at 800-243-1574 if you have questions about your account or require assistance. We appreciate your business and remain committed to
your long-term financial success.
Sincerely,
George R.
Aylward
President, Virtus Alternative Solutions Trust
President, Virtus Alternative Solutions Trust
June 2022
Performance data quoted represents past results. Past
performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. Investing involves risk, including the risk of loss of principal invested.
1
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
DISCLOSURE OF FUND EXPENSES (Unaudited)
FOR THE SIX-MONTH PERIOD OF November
1, 2021 TO April 30, 2022
We believe it is important for you to
understand the impact of costs on your investment. All mutual funds have operating expenses. As a shareholder of a Virtus Alternative Solutions Trust fund (each, a “Fund”), you may incur two types of costs: (1) transaction costs,
including sales charges on purchases of Class A shares and contingent deferred sales charges on Class C shares; and (2) ongoing costs, including investment advisory fees, distribution and service fees, and other expenses. Class I shares and Class R6
shares are sold without sales charges and do not incur distribution and service fees. Class R6 shares also do not incur shareholder servicing fees. For further information regarding applicable sales charges, see Note 1 in the Notes to Financial
Statements. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of
$1,000 invested at the beginning of the period and held for the entire six-month period.
Please note that the expenses shown in the
accompanying tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges or contingent deferred sales charges. Therefore, the accompanying tables are useful in comparing ongoing costs only,
and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The calculations assume no shares were bought or sold during the period.
Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
Actual Expenses
The table below provides information about
actual account values and actual expenses. You may use the information below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account
value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
| Beginning
Account Value November 1, 2021 |
Ending
Account Value April 30, 2022 |
Annualized
Expense Ratio* |
Expenses
Paid During Period** | |||||
|
Duff & Phelps Select MLP and Energy
Fund |
||||||||
| Class A | $ 1,000.00 | $ 1,172.50 | 1.40 % | $ 7.54 | ||||
| Class C | 1,000.00 | 1,167.60 | 2.15 | 11.56 | ||||
| Class I | 1,000.00 | 1,172.80 | 1.15 | 6.20 | ||||
|
KAR Long/Short Equity
Fund |
||||||||
| Class A | 1,000.00 | 859.30 | 2.19 | 10.09 | ||||
| Class C | 1,000.00 | 855.80 | 2.93 | 13.49 | ||||
| Class I | 1,000.00 | 859.90 | 1.94 | 8.92 | ||||
| Class R6 | 1,000.00 | 860.70 | 1.83 | 8.44 |
| * | Annualized expense ratios include dividend expense on securities sold short and interest expense securities sold short. |
| ** | Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (181) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. |
For Funds which may invest in other funds, the annualized
expense ratios noted above do not reflect fees and expenses associated with any underlying funds. If such fees and expenses had been included, the expenses would have been higher.
You can find more information about a Fund’s expenses in
the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to that Fund’s prospectus.
2
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
DISCLOSURE OF FUND EXPENSES (Unaudited)
(Continued)
FOR THE SIX-MONTH PERIOD OF November 1, 2021 TO April 30, 2022
Hypothetical Example for Comparison Purposes
The table below provides information about
hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not your Fund’s actual return. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare these 5%
hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other mutual funds.
| Beginning
Account Value November 1, 2021 |
Ending
Account Value April 30, 2022 |
Annualized
Expense Ratio* |
Expenses
Paid During Period** | |||||
|
Duff & Phelps Select MLP and Energy
Fund |
||||||||
| Class A | $ 1,000.00 | $ 1,017.85 | 1.40 % | $ 7.01 | ||||
| Class C | 1,000.00 | 1,014.13 | 2.15 | 10.74 | ||||
| Class I | 1,000.00 | 1,019.09 | 1.15 | 5.76 | ||||
|
KAR Long/Short Equity
Fund |
||||||||
| Class A | 1,000.00 | 1,013.94 | 2.19 | 10.93 | ||||
| Class C | 1,000.00 | 1,010.25 | 2.93 | 14.62 | ||||
| Class I | 1,000.00 | 1,015.20 | 1.94 | 9.67 | ||||
| Class R6 | 1,000.00 | 1,015.72 | 1.83 | 9.14 |
| * | Annualized expense ratios include dividend and interest expense on securities sold short. |
| ** | Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (181) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one-half year period. |
For Funds which may invest in other funds, the annualized
expense ratios noted above do not reflect fees and expenses associated with any underlying funds. If such fees and expenses had been included, the expenses would have been higher.
You can find more information about a Fund’s expenses in
the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to that Fund’s prospectus.
3
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
KEY INVESTMENT TERMS (Unaudited)
April 30, 2022
American
Depositary Receipt (“ADR”)
Represents shares
of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a U.S. bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg 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, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Bloomberg U.S. Corporate High Yield Bond Index
The Bloomberg U.S. Corporate High Yield Bond Index measures the
U.S. dollar-denominated, high yield, fixed-rate corporate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct
investment.
Exchange–Traded Funds
(“ETF”)
An open-end fund that is traded on a
stock exchange. Most ETFs have a portfolio of stocks or bonds that track a specific market index.
Federal Reserve (the “Fed”)
The Fed is the Central Bank of the U.S., responsible for
controlling money supply, interest rates, and credit with the goal of keeping the U.S. economy and currency stable. Governed by a seven-member board, the system includes 12 regional Federal Reserve Banks, 25 Branches, and all national and state
banks that are part of the system.
Master Limited
Partnerships (“MLPs”)
Investment which
combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. To be classified as an MLP, a partnership must derive most of its cash flows from real estate, natural resources and commodities.
MSCI EAFE® Index (net)
The MSCI EAFE®(Europe, Australasia, Far East) Index (net) is a free float-adjusted, market capitalization-weighted index that measures developed foreign market equity performance, excluding
the U.S. and Canada. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
MSCI Emerging Markets Index (net)
The MSCI Emerging Markets Index (net) is a free float-adjusted,
market capitalization-weighted index designed to measure equity market performance in the global emerging markets. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any
fees, expenses, or sales charges, and it is not available for direct investment.
Real Estate Investment Trust (“REIT”)
A publicly traded company that owns, develops and operates
income-producing real estate such as apartments, office buildings, hotels, shopping centers and other commercial properties.
Russell 2000® Index
The Russell 2000® Index is a market capitalization-weighted index of the 2,000 smallest 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, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
S&P 500® Index
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 index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
4
VIRTUS ALTERNATIVE SOLUTIONS TRUST
PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
April 30, 2022
For each
Fund, the following tables present asset allocations within certain sectors as a percentage of total investments as of April 30, 2022.
5
Duff & Phelps Select
MLP and Energy Fund
SCHEDULE OF INVESTMENTS (Unaudited)
April 30, 2022
($ reported in
thousands)
†† Midstream MLPs are publicly traded limited partnerships and limited liability companies that are treated as partnerships for federal income tax purposes and operate and own assets used in transporting, storing, gathering, processing,
treating, or marketing of natural gas, natural gas liquids, crude oil, and refined products.
MLP Affiliates & Other consist of LLCs, Yieldcos and Limited Partnerships structured as corporations for tax purposes. LLCs are limited liability companies which hold investments in limited partner interests and may issue distributions in the
form of additional shares, also known as paid-in-kind (PIK) distributions. Yieldcos are entities structured similar to an MLP but without possession of assets that would qualify for pass-through tax treatment and thus are not treated as partnerships
for federal income tax purposes. Other also includes c-corporations that hold significant midstream or downstream assets.
Pure-Play General Partners are general partners of MLPs structured as C-corporations for federal income tax purposes with either direct economic incentive distribution rights to an underlying MLP or direct ownership in an affiliated general
partner entity.
Embedded General Partners are general partners of MLPs structured as C-corporations for federal income tax purposes with ownership in other assets beyond sole economic interests in an MLP.
Major Midstream Companies are entities that own and operate assets used in transporting, storing, gathering, processing, treating, or marketing of natural gas liquids, crude oil and refined products and structured as C-corporations for federal
income tax purposes.
Other MLPs are publicly traded limited partnerships and limited liability companies that are treated as partnerships for federal income tax purposes and can include any MLP that is not Midstream.
See Notes to Financial Statements
6
Duff & Phelps Select
MLP and Energy Fund
SCHEDULE OF INVESTMENTS (Unaudited)
(Continued)
April 30, 2022
($ reported in
thousands)
The following table summarizes the market value of the
Fund’s investments as of April 30, 2022, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total
Value at April 30, 2022 |
Level
1 Quoted Prices | ||
| Assets: | |||
| Equity Securities: | |||
| Common Stocks & MLP Interests | $32,430 | $32,430 | |
| Money Market Mutual Fund | 631 | 631 | |
| Total Investments | $33,061 | $33,061 |
There were no securities
valued using significant observable inputs (Level 2) or significant unobservable inputs (Level 3) at April 30, 2022.
There were no transfers into or out of Level 3 related
to securities held at April 30, 2022.
See Notes to Financial Statements
7
KAR Long/Short Equity
Fund
SCHEDULE OF INVESTMENTS (Unaudited)
April 30, 2022
($ reported in
thousands)
See Notes to Financial Statements
8
KAR Long/Short Equity
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
April 30, 2022
($ reported in
thousands)
The following table summarizes the market value of the
Fund’s investments as of April 30, 2022, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total
Value at April 30, 2022 |
Level
1 Quoted Prices | ||
| Assets: | |||
| Equity Securities: | |||
| Common Stocks | $120,737 | $120,737 | |
| Money Market Mutual Fund | 634 | 634 | |
| Total Assets | 121,371 | 121,371 | |
| Liabilities: | |||
| Securities Sold Short: | |||
| Common Stocks | (21,548) | (21,548) | |
| Total Liabilities | (21,548) | (21,548) | |
| Total Investments | $ 99,823 | $ 99,823 |
There were no securities valued using significant
observable inputs (Level 2) or significant unobservable inputs (Level 3) at April 30, 2022.
There were no transfers into or out of Level 3 related
to securities held at April 30, 2022.
See Notes to Financial Statements
9
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited)
April 30, 2022
(Reported in
thousands except shares and per share amounts)
| Duff
& Phelps Select MLP and Energy Fund |
KAR Long/Short Equity Fund | ||
| Assets | |||
|
Investment in securities at
value(1) |
$ 33,061 | $121,371 | |
|
Cash
|
50 | 50 | |
|
Due from
broker |
— | 23,221 | |
| Receivables | |||
|
Investment securities sold
|
147 | — | |
|
Fund shares sold
|
100 | 28 | |
|
Dividends and
interest |
135 | 8 | |
|
Tax reclaims
|
2 | — | |
|
Tax
receivable |
25 | — | |
|
Prepaid Trustees’
retainer |
— (a) | 1 | |
|
Prepaid expenses
|
22 | 29 | |
|
Other assets
|
3 | 10 | |
|
Total
assets |
33,545 | 144,718 | |
| Liabilities | |||
|
Securities sold
short(2) |
— | 21,548 | |
| Payables | |||
|
Fund shares repurchased
|
102 | 59 | |
|
Investment securities purchased
|
349 | — | |
|
Dividend distributions
|
— | 4 | |
|
Investment advisory fees
|
19 | 121 | |
|
Distribution and service fees
|
2 | 1 | |
|
Administration and accounting
fees |
3 | 11 | |
|
Transfer agent and sub-transfer agent fees and
expenses |
6 | 27 | |
|
Professional fees
|
166 | 14 | |
|
Trustee deferred compensation plan
|
3 | 10 | |
|
Interest expense and/or commitment
fees |
— | — | |
|
Other accrued
expenses |
75 | 28 | |
|
Total
liabilities |
725 | 21,823 | |
|
Net
Assets |
$ 32,820 | $122,895 | |
| Net Assets Consist of: | |||
|
Capital paid in on shares of beneficial
interest |
$ 142,925 | $105,497 | |
|
Accumulated earnings
(loss) |
(110,105) | 17,398 | |
|
Net
Assets |
$ 32,820 | $122,895 | |
See Notes to Financial Statements
10
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES (Unaudited)
(Continued)
April 30, 2022
(Reported in
thousands except shares and per share amounts)
| Duff
& Phelps Select MLP and Energy Fund |
KAR Long/Short Equity Fund | ||
| Net Assets: | |||
|
Class
A |
$ 9,052 | $ 3,325 | |
|
Class
C |
$ 529 | $ 384 | |
|
Class
I |
$ 23,239 | $ 118,559 | |
|
Class
R6 |
$ — | $ 627 | |
| Shares Outstanding (unlimited number of shares authorized, no par value): | |||
|
Class
A |
834,778 | 204,423 | |
|
Class
C |
49,417 | 24,220 | |
|
Class
I |
2,173,268 | 7,227,094 | |
|
Class
R6 |
— | 38,153 | |
| Net Asset Value and Redemption Price Per Share:* | |||
|
Class
A |
$ 10.84 | $ 16.26 | |
|
Class
C |
$ 10.71 | $ 15.85 | |
|
Class
I |
$ 10.69 | $ 16.40 | |
|
Class
R6 |
$ — | $ 16.44 | |
| Maximum Offering Price Per Share (NAV/(1-5.50%)): | |||
|
Class
A |
$ 11.47 | $ 17.21 | |
|
Maximum Sales Charge - Class
A |
5.50% | 5.50% | |
|
(1) Investment in securities at
cost |
$ 27,246 | $ 102,434 | |
|
(2) Securities sold short
proceeds |
$ — | $ 24,230 |
| * | Net Asset Value and Redemption Price Per Share are calculated using unrounded net assets. |
| (a) | Amount is less than $500. |
See Notes to Financial Statements
11
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
STATEMENTS OF OPERATIONS (Unaudited)
SIX MONTHS ENDED April 30,
2022
($ reported in thousands)
| Duff
& Phelps Select MLP and Energy Fund |
KAR Long/Short Equity Fund | ||
| Investment Income | |||
|
Dividends
|
$ 652 | $ 706 | |
|
Less: return of capital
distributions |
(407) | — | |
|
Interest
|
— (1) | (18) | |
|
Securities lending, net of
fees |
— | — (1) | |
|
Foreign taxes withheld
|
(11) | — | |
|
Total investment
income |
234 | 688 | |
| Expenses | |||
|
Investment advisory
fees |
120 | 925 | |
|
Distribution and service fees, Class
A |
5 | 7 | |
|
Distribution and service fees, Class
C |
2 | 2 | |
|
Administration and accounting
fees |
17 | 76 | |
|
Transfer agent fees and
expenses |
7 | 30 | |
|
Sub-transfer agent fees and expenses, Class
A |
1 | 3 | |
|
Sub-transfer agent fees and expenses, Class
C |
— (1) | — | |
|
Sub-transfer agent fees and expenses, Class
I |
10 | 95 | |
|
Custodian fees
|
— (1) | — (1) | |
|
Printing fees and expenses
|
3 | 22 | |
|
Professional fees
|
13 | 12 | |
|
Registration fees
|
20 | 31 | |
|
Trustees’ fees and expenses
|
1 | 4 | |
|
Miscellaneous
expenses |
1 | 78 | |
|
Total
expenses |
200 | 1,285 | |
|
Dividend expense and interest expense on securities sold
short |
— | 212 | |
|
Total expenses, including dividend and interest expense on securities sold
short |
200 | 1,497 | |
|
Less net expenses reimbursed and/or waived by investment
adviser |
(39) | (57) | |
|
Net
expenses |
161 | 1,440 | |
|
Net investment income
(loss) |
73 | (752) | |
| Net Realized and Unrealized Gain (Loss) on Investments | |||
| Net realized gain (loss) from: | |||
|
Investments |
1,074 | (1,854) | |
|
Foreign currency
transactions |
— (1) | (17) | |
| Net change in unrealized appreciation (depreciation) on: | |||
|
Investments |
3,058 | (30,233) | |
|
Securities sold
short |
— | 10,527 | |
|
Foreign currency
transactions |
— (1) | — | |
|
Net realized and unrealized gain (loss) on
investments |
4,132 | (21,577) | |
|
Net increase (decrease) in net assets resulting from
operations |
$4,205 | $(22,329) |
| (1) | Amount is less than $500. |
See Notes to Financial Statements
12
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in
thousands)
| Duff & Phelps Select MLP and Energy Fund | KAR Long/Short Equity Fund | ||||||
| Six
Months Ended April 30, 2022 (Unaudited) |
Year
Ended October 31, 2021 |
Six
Months Ended April 30, 2022 (Unaudited) |
Year
Ended October 31, 2021 | ||||
| Increase (Decrease) in Net Assets Resulting from Operations | |||||||
|
Net investment income (loss)
|
$ 73 | $ 32 | $ (752) | $ (1,864) | |||
|
Net realized gain (loss)
|
1,074 | 586 | (1,871) | 687 | |||
|
Net change in unrealized appreciation (depreciation)
|
3,058 | 4,520 | (19,706) | 21,419 | |||
|
Increase (decrease) in net assets resulting from
operations |
4,205 | 5,138 | (22,329) | 20,242 | |||
| Dividends and Distributions to Shareholders | |||||||
| Net Investment Income and Net Realized Gains: | |||||||
|
Class
A |
(122) | (14) | (23) | (24) | |||
|
Class
C |
(4) | (2) | (2) | (5) | |||
|
Class
I |
(273) | (155) | (564) | (1,030) | |||
|
Class
R6 |
— | — | (1) | (1) | |||
| Return of Capital: | |||||||
|
Class
A |
— | (38) | — | — | |||
|
Class
C |
— | (5) | — | — | |||
|
Class
I |
— | (434) | — | — | |||
|
Total dividends and distributions to
shareholders |
(399) | (648) | (590) | (1,060) | |||
| Change in Net Assets from Capital Transactions (See Note 5): | |||||||
|
Class
A |
6,445 | 1,419 | (1,450) | 3,900 | |||
|
Class
C |
174 | 135 | (5) | (114) | |||
|
Class
I |
(2,497) | 14,088 | (13,234) | 25,344 | |||
|
Class
R6 |
— | — | 322 | 204 | |||
|
Increase (decrease) in net assets from capital
transactions |
4,122 | 15,642 | (14,367) | 29,334 | |||
|
Net increase (decrease) in net
assets |
7,928 | 20,132 | (37,286) | 48,516 | |||
| Net Assets | |||||||
|
Beginning of
period |
24,892 | 4,760 | 160,181 | 111,665 | |||
|
End of
Period |
$ 32,820 | $ 24,892 | $ 122,895 | $ 160,181 | |||
See Notes to Financial Statements
13
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
THROUGHOUT EACH PERIOD
| Net
Asset Value, Beginning of Period |
Net Investment Income (Loss)(1) | Net
Realized and Unrealized Gain (Loss) |
Total from Investment Operations | Dividends
from Net Investment Income |
Return of Capital | Distributions
from Net Realized Gains |
Total Distributions | Change in Net Asset Value | Net Asset Value, End of Period | Total Return(2)(3) | Net
Assets, End of Period (in thousands) |
Ratio
of Net Expenses to Average Net Assets (including dividend and interest expense on securities sold short)(4) |
Ratio
of Gross Expenses to Average Net Assets(4) |
Ratio
of Net Investment Income (Loss) to Average Net Assets(4) |
Portfolio Turnover Rate(2) | ||
| Duff & Phelps Select MLP and Energy Fund | |||||||||||||||||
| Class A | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $ 9.37 | (0.02) | 1.64 | 1.62 | (0.15) | — | — | (0.15) | 1.47 | $10.84 | 17.25 % | $ 9,052 | 1.40 % (6) | 1.65 % | (0.47) % | 17 % | |
| 11/1/20 to 10/31/21 | 5.19 | (0.01) | 4.49 | 4.48 | (0.08) | (0.22) | — | (0.30) | 4.18 | 9.37 | 86.75 | 2,117 | 1.40 (6) | 2.02 | (0.14) | 49 | |
| 11/1/19 to 10/31/20 | 8.09 | 0.06 | (2.65) | (2.59) | — | (0.31) | — | (0.31) | (2.90) | 5.19 | (32.15) | 317 | 1.40 (6) | 3.11 | 0.95 | 41 | |
| 11/1/18 to 10/31/19 | 9.26 | 0.14 | (0.82) | (0.68) | (0.12) | (0.37) | — | (0.49) | (1.17) | 8.09 | (7.22) | 447 | 1.40 (6) | 2.59 | 1.56 | 82 | |
| 11/1/17 to 10/31/18 | 9.39 | 0.02 | 0.07 | 0.09 | (0.17) | (0.05) | — | (0.22) | (0.13) | 9.26 | 0.79 | 321 | 1.45 (7) | 2.87 | 0.21 | 29 | |
| 11/1/16 to 10/31/17 | 9.57 | — (8) | 0.02 | 0.02 | (0.10) | (0.10) | — | (0.20) | (0.18) | 9.39 | 0.06 | 333 | 1.55 | 4.75 | 0.01 | 32 | |
| Class C | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $ 9.25 | (0.02) | 1.57 | 1.55 | (0.09) | — | — | (0.09) | 1.46 | $10.71 | 16.76 % | $ 529 | 2.15 % (6) | 2.41 % | (0.44) % | 17 % | |
| 11/1/20 to 10/31/21 | 5.12 | (0.07) | 4.45 | 4.38 | (0.07) | (0.18) | — | (0.25) | 4.13 | 9.25 | 85.81 | 297 | 2.15 (6) | 2.77 | (0.83) | 49 | |
| 11/1/19 to 10/31/20 | 8.01 | 0.02 | (2.64) | (2.62) | — | (0.27) | — | (0.27) | (2.89) | 5.12 | (32.76) | 79 | 2.15 (6) | 3.85 | 0.28 | 41 | |
| 11/1/18 to 10/31/19 | 9.20 | (0.03) | (0.70) | (0.73) | (0.09) | (0.37) | — | (0.46) | (1.19) | 8.01 | (7.84) | 126 | 2.16 (6) | 3.36 | (0.32) | 82 | |
| 11/1/17 to 10/31/18 | 9.36 | (0.05) | 0.05 | — | (0.11) | (0.05) | — | (0.16) | (0.16) | 9.20 | (0.13) | 143 | 2.21 (7) | 3.61 | (0.55) | 29 | |
| 11/1/16 to 10/31/17 | 9.54 | (0.07) | 0.01 | (0.06) | (0.02) | (0.10) | — | (0.12) | (0.18) | 9.36 | (0.69) | 145 | 2.30 | 5.47 | (0.74) | 32 | |
| Class I | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $ 9.22 | 0.04 | 1.56 | 1.60 | (0.13) | — | — | (0.13) | 1.47 | $10.69 | 17.28 % | $ 23,239 | 1.15 % (6) | 1.45 % | 0.77 % | 17 % | |
| 11/1/20 to 10/31/21 | 5.10 | 0.02 | 4.42 | 4.44 | (0.08) | (0.24) | — | (0.32) | 4.12 | 9.22 | 87.52 | 22,478 | 1.15 (6) | 1.78 | 0.28 | 49 | |
| 11/1/19 to 10/31/20 | 7.99 | 0.08 | (2.63) | (2.55) | — | (0.34) | — | (0.34) | (2.89) | 5.10 | (32.03) | 4,364 | 1.15 (6) | 2.79 | 1.30 | 41 | |
| 11/1/18 to 10/31/19 | 9.25 | 0.05 | (0.70) | (0.65) | (0.24) | (0.37) | — | (0.61) | (1.26) | 7.99 | (6.98) | 4,255 | 1.16 (6) | 2.31 | 0.62 | 82 | |
| 11/1/17 to 10/31/18 | 9.40 | 0.04 | 0.07 | 0.11 | (0.21) | (0.05) | — | (0.26) | (0.15) | 9.25 | 0.99 | 4,989 | 1.21 (7) | 2.56 | 0.45 | 29 | |
| 11/1/16 to 10/31/17 | 9.58 | 0.03 | 0.01 | 0.04 | (0.12) | (0.10) | — | (0.22) | (0.18) | 9.40 | 0.27 | 5,056 | 1.30 | 4.46 | 0.26 | 32 | |
| KAR Long/Short Equity Fund | |||||||||||||||||
| Class A | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $18.99 | (0.11) | (2.55) | (2.66) | — | — | (0.07) | (0.07) | (2.73) | $16.26 | (14.07) % | $ 3,325 | 2.19 % (9) | 2.26 % | (1.24) % | 19 % | |
| 11/1/20 to 10/31/21 | 16.44 | (0.29) | 2.98 | 2.69 | — | — | (0.14) | (0.14) | 2.55 | 18.99 | 16.47 | 5,578 | 2.23 (9) | 2.31 | (1.59) | 19 | |
| 11/1/19 to 10/31/20 | 12.69 | (0.20) | 4.00 | 3.80 | — | — | (0.05) | (0.05) | 3.75 | 16.44 | 30.01 | 1,210 | 2.32 (9) | 2.51 | (1.34) | 33 | |
| 12/6/18 (10) to 10/31/19 | 10.00 | (0.11) | 2.80 | 2.69 | — | — | — | — | 2.69 | 12.69 | 26.90 | 134 | 2.40 (9) | 4.26 | (1.03) | 56 | |
| Class C | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $18.59 | (0.17) | (2.50) | (2.67) | — | — | (0.07) | (0.07) | (2.74) | $15.85 | (14.42) % | $ 384 | 2.93 % (9) | 2.94 % | (2.01) % | 19 % | |
| 11/1/20 to 10/31/21 | 16.21 | (0.40) | 2.92 | 2.52 | — | — | (0.14) | (0.14) | 2.38 | 18.59 | 15.65 | 456 | 3.00 (9) | 3.01 | (2.29) | 19 | |
| 11/1/19 to 10/31/20 | 12.61 | (0.28) | 3.93 | 3.65 | — | — | (0.05) | (0.05) | 3.60 | 16.21 | 29.01 | 504 | 3.09 (9) | 3.28 | (2.02) | 33 | |
| 12/6/18 (10) to 10/31/19 | 10.00 | (0.18) | 2.79 | 2.61 | — | — | — | — | 2.61 | 12.61 | 26.10 | 138 | 3.15 (9) | 5.02 | (1.78) | 56 | |
| Class I | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $19.14 | (0.09) | (2.58) | (2.67) | — | — | (0.07) | (0.07) | (2.74) | $16.40 | (14.01) % | $118,559 | 1.94 % (9) | 2.01 % | (1.01) % | 19 % | |
| 11/1/20 to 10/31/21 | 16.53 | (0.24) | 2.99 | 2.75 | — | — | (0.14) | (0.14) | 2.61 | 19.14 | 16.75 | 153,771 | 1.98 (9) | 2.07 | (1.31) | 19 | |
| 11/1/19 to 10/31/20 | 12.72 | (0.15) | 4.01 | 3.86 | — | — | (0.05) | (0.05) | 3.81 | 16.53 | 30.41 | 109,819 | 2.07 (9) | 2.30 | (1.05) | 33 | |
| 12/6/18 (10) to 10/31/19 | 10.00 | (0.10) | 2.82 | 2.72 | — | — | — | — | 2.72 | 12.72 | 27.20 | 17,813 | 2.04 (9) | 3.99 | (0.94) | 56 | |
| Class R6 | |||||||||||||||||
| 11/1/21 to 4/30/22(5) | $19.17 | (0.09) | (2.57) | (2.66) | — | — | (0.07) | (0.07) | (2.73) | $16.44 | (13.93) % | $ 627 | 1.83 % (9) | 1.86 % | (1.00) % | 19 % | |
| 11/1/20 to 10/31/21 | 16.54 | (0.24) | 3.01 | 2.77 | — | — | (0.14) | (0.14) | 2.63 | 19.17 | 16.86 | 376 | 1.90 (9) | 1.92 | (1.30) | 19 | |
| 11/1/19 to 10/31/20 | 12.73 | (0.13) | 3.99 | 3.86 | — | — | (0.05) | (0.05) | 3.81 | 16.54 | 30.39 | 132 | 2.07 (9) | 2.24 | (0.95) | 33 | |
| 12/6/18 (10) to 10/31/19 | 10.00 | (0.07) | 2.80 | 2.73 | — | — | — | — | 2.73 | 12.73 | 27.30 | 3,437 | 2.08 (9) | 4.00 | (0.71) | 56 |
| Footnote Legend: | |
| (1) | Calculated using average shares outstanding. |
| (2) | Not annualized for periods less than one year. |
See Notes to Financial Statements
14
VIRTUS ALTERNATIVE
SOLUTIONS TRUST
FINANCIAL HIGHLIGHTS (Continued)
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
| (3) | Sales charges, where applicable, are not reflected in the total return calculation. |
| (4) | Annualized for periods less than one year. |
| (5) | Unaudited. |
| (6) | The ratio of net expenses to average net assets excluding interest expense for the Duff & Phelps Select MLP and Energy Fund for Class A are 1.40%, 1.40%, 1.40% and 1.40%, Class C is 2.15%, 2.15%, 2.15% and 2.15% and for Class I is 1.15%, 1.15%, 1.15% and 1.15% for the six months ended April 30, 2022, years ended October 31, 2021, October 31, 2020 and October 31, 2019, respectively. |
| (7) | Due to a change in expense cap, the ratio shown is a blended expense ratio. |
| (8) | Amount is less than $0.005 per share. |
| (9) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for the KAR Long/Short Equity Fund for Class A are 1.80%, 1.80%, 1.80% and 1.80%, for Class C is 2.55%, 2.55% 2.55% and 2.55%, for Class I is 1.55%, 1.55%, 1.55% and 1.55% and for Class R6 is 1.48%, 1.48%, 1.48% and 1.48% for the six months ended April 30, 2022, years ended October 31, 2021, October 31, 2020 and the period ended October 31, 2019, respectively. |
| (10) | Inception date. |
See Notes to Financial Statements
15
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited)
April 30, 2022
Note 1. Organization
Virtus Alternative Solutions Trust (the
“Trust”) is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. As of the date of this report the
Trust is comprised of two non-diversified funds (Duff & Phelps Select MLP and Energy Fund and KAR Long/Short Equity Fund), each having a distinct investment objective(s) outlined below.
The Funds have the following investment
objective(s)
| Fund | Investment objective(s) | |
|
Duff & Phelps Select MLP and Energy
Fund |
Total return with a secondary objective of income. | |
|
KAR Long/Short Equity
Fund |
Seeking long-term capital appreciation. |
There is no guarantee that a Fund will
achieve its objective(s).
Each of the
Funds offers Class A shares, Class C shares and Class I shares. The KAR Long/Short Equity Fund also offer Class R6 shares.
Effective February 1, 2021, Class A shares
of the Funds are sold with a front-end sales charge of up to 5.50% with some exceptions. Prior to February 1, 2021, Class A shares were sold with a front-end sales charge of up to 5.75% with some exceptions. Generally, Class A shares are not subject
to any charges by the Funds when redeemed; however, a 1% contingent deferred sales charge (“CDSC”) may be imposed on certain redemptions made within a certain period following purchases on which a finder’s fee has been paid. The
period for which such CDSC applies for the Funds is 18 months. The CDSC period begins on the last day of the month preceding the month in which the purchase was made.
Class C shares are generally sold with a 1%
CDSC, applicable if redeemed within one year of purchase. Class C shares and any reinvested dividends and other distributions paid on such shares, will be automatically converted to Class A shares of the same Fund following a required holding
period, which as of March 1, 2021, was eight years. From January 1, 2019 to February 28, 2021, with certain exceptions, Class C shares and any reinvested dividends and other distributions paid on such shares, were automatically converted to Class A
shares ten years after the purchase date. If an investor intends to purchase greater than $999,999 of Class C shares, and the purchase would qualify for Class A shares with no load, then the purchase will automatically be made into a purchase of
Class A shares, thus reducing expenses. Class I shares and Class R6 shares are sold without a front-end sales charge or CDSC.
Class R6 shares are offered without a
minimum initial investment to the following investors in plan level or omnibus accounts only (provided that they do not require or receive any compensation, administrative payments, sub-transfer agency payments or service payments with respect to
Class R6 shares): (i) qualified retirement plans, including, but not limited to, 401(k) plans, 457 plans, employer sponsored 403(b) plans and defined benefit plans; (ii) banks and trust companies; (iii) insurance companies; (iv) financial
intermediaries utilizing such shares in fee-based investment advisory programs; (v) registered investment companies; and (vi) non-qualified deferred compensation plans. Other institutional investors may be permitted to purchase Class R6 shares
subject to the applicable Fund’s determination of eligibility and may be subject to a minimum initial investment requirement. In addition, without a minimum initial investment requirement, Class R6 shares are available to any trustee of the
Virtus Funds and trustees/directors of affiliated open- and closed-end funds, directors, officers and employees of Virtus and its affiliates, and a spouse or domestic partner, child or minor grandchild of any such qualifying individual (in each case
either individually or jointly with other investors), provided in each case that those shares are held directly with the Transfer Agent or in an eligible account. Class R6 shares do not carry sales commissions or pay Rule 12b-1 fees. No
compensation, administrative payments, sub-transfer agency payments or service payments are paid to brokers or other entities from Fund assets or the Funds’ distributor’s or an affiliate’s resources on sales of or investments in
Class R6 shares.
The Funds may impose
an annual fee on accounts having balances of less than $2,500. The small account fee may be waived in certain circumstances, as disclosed in the prospectus and/or statement of additional information. The fees collected will be used to offset certain
expenses of the Funds.
Each class of
shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class bears any expenses attributable specifically to that class (“class-specific expenses”) and has exclusive voting
rights with respect to any Rule 12b-1 and/or shareholder service plan (“12b-1 Plan”) approved by the Board. Class I shares and Class R6 shares are not subject to a 12b-1 Plan. Class-specific expenses may include shareholder servicing
fees, sub-transfer agency fees, and fees under a 12b-1 Plan, as well as certain other expenses as designated by the Funds’ Treasurer and approved by the Board. Investment income, common operating expenses and realized and unrealized gains and
losses of each Fund are borne pro-rata by the holders of each class of shares.
Note 2. Significant Accounting Policies
The Trust is an investment company that
follows the accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following is a summary of significant
accounting policies consistently followed by the Funds in the preparation of their financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could differ from those estimates and those differences could be significant.
16
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
| A. | Security Valuation |
| Each Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Funds’ policy is to recognize transfers into or out of Level 3 at the end of the reporting period. | |
| • Level 1 – quoted prices in active markets for identical securities (security types generally include listed equities). |
• Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
• Level 3 – prices determined using significant unobservable inputs (including the Valuation Committee’s own assumptions in determining the fair value of investments).
A description of the valuation
techniques applied to a Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
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 and are categorized as Level 1 in the hierarchy. Restricted equity securities and
private placements that are illiquid, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Certain non-U.S. securities 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, significant events (such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that a Fund calculates its net asset value (“NAV”) at the close of regular trading on the New York Stock
Exchange (“NYSE”) (generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases, the Funds fair value non-U.S. securities using an independent pricing service which considers the
correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as ADRs, financial futures, ETFs, and certain indexes, as well as prices for similar securities. Such fair valuations are
categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent basis.
Investments in open-end mutual funds are
valued at NAV. Investments in closed-end funds and ETFs are valued as of the close of regular trading on the NYSE each business day. Each is categorized as Level 1 in the hierarchy.
A summary of the inputs used to value a
Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments for each Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing
in those securities.
| B. | Security Transactions and Investment Income |
| Security transactions are recorded on the trade date. Realized gains and losses from the sale of securities are determined on the identified cost basis. Dividend income is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as a Fund is notified. Interest income is recorded on the accrual basis. Each Fund amortizes premiums and accretes discounts using the effective interest method. Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds. | |
| Dividend income from REIT and MLP investments is recorded using management’s estimate of the percentage of income included in distributions received from such investments based on historical information and other industry sources. The return of capital portion of the estimate is a reduction to investment income and a reduction in the cost basis of each investment which increases net realized gain (loss) and net change in unrealized appreciation (depreciation). If the return of capital distributions exceed their cost basis, the distributions are treated as realized gains. The Duff & Phelps Select MLP and Energy Fund invests in MLPs that make distributions that are primarily attributable to return of capital. The actual amounts of income, return of capital, and capital gains are only determined by each REIT and MLP after its fiscal year-end, and may differ from the estimated amounts. | |
| C. | Income Taxes |
| Each Fund is treated as a separate taxable entity. It is the intention of each Fund to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes or excise taxes has been made. | |
| Certain Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Each Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests. | |
| Management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Each Fund’s U.S. federal income tax return is generally subject to examination by the Internal Revenue Service for a period of three years after it is filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction. | |
| D. | Distributions to Shareholders |
| Distributions are recorded by each Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. |
17
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
| E. | Expenses |
| Expenses incurred together by a Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expense to each Fund or an alternative allocation method can be more appropriately used. | |
| In addition to the net annual operating expenses that a Fund bears directly, the shareholders of a Fund indirectly bear the pro-rata expenses of any underlying mutual funds in which the Fund invests. | |
| F. | Foreign Currency Transactions |
| Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Funds do not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments. | |
| G. | Short Sales |
| Each Fund may sell securities short. A short sale is a transaction in which a Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, a Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and by cash and securities deposited in a segregated account with the Fund’s custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased, and any realized loss increased, by the amount of transaction costs. On ex-dividend date, dividends on short sales are recorded as an expense to the Fund. | |
| In addition, in accordance with the terms of its prime brokerage agreement, KAR Long/Short Equity Fund may receive rebate income or be charged a fee on borrowed securities. Such income or fee is calculated on a daily basis based upon the market value of each borrowed security and a variable rate that is dependent upon the availability of such security. The dividends on short sales and rebate income/fees are recorded under “Dividend expense and interest expense on securities sold short” on the Statement of Operations. | |
| H. | Securities Lending |
| The Funds may loan securities to qualified brokers through a securities lending agency agreement with The Bank of New York Mellon (“BNYM”). Under the securities lending policy, when lending securities a Fund is required to maintain collateral with a market value not less than 100% of the market value of loaned securities. Collateral is adjusted daily in connection with changes in the market value of securities on loan. Collateral may consist of cash and securities issued by the U.S. Government or its agencies. Cash collateral is invested in a short-term money market fund. Dividends earned on the collateral and premiums paid by the broker are recorded as income by the Fund net of fees and rebates charged/paid by BNYM for its services as securities lending agent and in connection with this securities lending program. Lending portfolio securities involves a risk of delay in the recovery of the loaned securities or in the declining value of the collateral. | |
| Securities lending transactions are entered into by each Fund under a Master Securities Lending Agreement (“MSLA”) which permit the Fund, under certain circumstances including an event of default (such as bankruptcy or insolvency), to offset amounts payable by the Fund to the same counterparty against amounts to be received and create one single net payment due to or from the Fund. | |
| At April 30, 2022, the Funds had no securities on loan. |
Note 3. Investment Advisory Fees and Related Party
Transactions
($ reported in
thousands)
| A. | Investment Adviser |
| Virtus Alternative Investment Advisers, Inc. (“VAIA” or the “Adviser”), an indirect, wholly-owned subsidiary of Virtus Investment Partners, Inc. (“Virtus”), is the investment adviser to the Funds. The Adviser manages the Funds’ investment programs and general operations of the Funds, including oversight of the Funds’ subadvisers. | |
| As compensation for its services to the Funds, the Adviser is entitled to a fee, which is calculated daily and paid monthly based upon the following annual rates as a percentage of the average daily net assets of each Fund. |
| 1st
$1 Billion |
$1+
Billion |
||||||
| Duff & Phelps Select MLP and Energy Fund | 0.90% | 0.85% | |||||
| KAR Long/Short Equity Fund | 1.25 | 1.20 | |||||
18
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
| B. | Subadvisers |
| The subadvisers manage the investments of each Fund for which they are paid a fee by the Adviser. | |
| The subadvisers and the Funds they serve as of the end of the period are as follows: Duff & Phelps Investment Management Co. (“Duff & Phelps”), an indirect wholly-owned subsidiary of Virtus, for Duff & Phelps Select MLP and Energy Fund; and Kayne Anderson Rudnick Investment Management, LLC (“KAR”), an indirect wholly-owned subsidiary of Virtus, for KAR Long/Short Equity Fund. | |
| C. | Expense Limitations |
| The Adviser has contractually agreed to limit Duff & Phelps Select MLP and Energy Fund’s and KAR Long/Short Equity Fund’s annual total operating expenses so that such expenses do not exceed, on an annualized basis, the following respective percentages of average daily net assets through June 26, 2023 and February 28, 2023 respectively. Following the contractual period, the Adviser may discontinue these expense reimbursement arrangements at any time. The waivers and reimbursements are accrued daily and received monthly. |
| Fund | Class A | Class C | Class I | Class R6 | ||||
|
Duff & Phelps Select MLP and Energy
Fund |
1.40 % | 2.15 % | 1.15 % | N/A | ||||
|
KAR Long/Short Equity
Fund |
1.80 | 2.55 | 1.55 | 1.48 % |
The exceptions
include front-end or contingent deferred loads, taxes, leverage and borrowing expenses (such as commitment, amendment and renewal expenses on credit or redemption facilities), interest, brokerage commissions, expenses incurred in connection with any
merger or reorganization, unusual or infrequently occurring expenses (such as litigation), acquired fund fees and expenses, and dividend expenses if any.
| D. | Expense Recapture |
| Under certain conditions, the Adviser may recapture operating expenses reimbursed or fees waived under these arrangements within three years after the date on which such amounts were incurred or waived. A Fund must pay its ordinary operating expenses before the Adviser is entitled to any reimbursement and must remain in compliance with any applicable expense limitations or, if none, the expense limitation in effect at the time of the waiver or reimbursement. All or a portion of the following Adviser reimbursed expenses may be recaptured by the period ending October 31: |
| Expiration | ||||||||||
| Fund | 2022 | 2023 | 2024 | 2025 | Total | |||||
| Duff & Phelps Select MLP and Energy Fund | ||||||||||
|
Class
A |
$ 18 | $ 9 | $ 6 | $ 5 | $ 38 | |||||
|
Class
C |
1 | 2 | 1 | 1 | 5 | |||||
|
Class
I |
27 | 75 | 77 | 33 | 212 | |||||
| KAR Long/Short Equity Fund | ||||||||||
|
Class A
|
1 | 1 | 3 | 2 | 7 | |||||
|
Class
C |
1 | 1 | — (1) | — | 2 | |||||
|
Class
I |
88 | 140 | 126 | 55 | 409 | |||||
|
Class
R6 |
27 | 5 | — (1) | — | 32 | |||||
| (1) | Amount is less than $500. |
| E. | Distributor |
| VP Distributors, LLC (“VP Distributors”), an indirect, wholly-owned subsidiary of Virtus, serves as the distributor of each Fund’s shares. VP Distributors has advised the Funds that for the six months ended April 30, 2022, there were $4 in commissions for Class A shares and less than $500 in CDSC for Class A shares and Class C shares, respectively. | |
| In addition, each Fund pays VP Distributors 12b-1 fees under a 12b-1 Plan as a percentage of the average daily net assets of each respective class at the annual rates of 0.25% for Class A shares and 1.00% for Class C shares. Class I and Class R6 shares are not subject to a 12b-1 Plan. | |
| Under certain circumstances, shares of certain Virtus Mutual Funds may be exchanged for shares of the same class of certain other Virtus Mutual Funds on the basis of the relative NAV per share at the time of the exchange. On exchanges with share classes that carry a CDSC, the CDSC schedule of the original shares purchased continues to apply. | |
| F. | Administrator and Transfer Agent |
| Virtus Fund Services, LLC, an indirect, wholly-owned subsidiary of Virtus, serves as the administrator and transfer agent to the Funds. | |
| For the six months ended April 30, 2022, the Funds incurred administration fees totaling $93 which are included in the Statements of Operations within the line item “Administration and accounting fees.” The fees are calculated daily and paid monthly. | |
| For the six months ended April 30, 2022, the Funds incurred transfer agent fees totaling $37 which are included in the Statements of Operations within the line item “Transfer agent fees and expenses.” The fees are calculated daily and paid monthly. |
19
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
| G. | Trustee Compensation |
| The Trust provides a deferred compensation plan for its Trustees who receive compensation from the Trust. Under the deferred compensation plan, Trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Trust, and then, to the extent permitted by the 1940 Act, in turn, may be invested in the shares of affiliated or unaffiliated mutual funds selected by the participating Trustees. Investments in such instruments are included in “Other assets” in the Statements of Assets and Liabilities at April 30, 2022. |
Note 4. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding
U.S. Government and agency securities, short-term securities and written options) during the six months ended April 30, 2022, were as follows:
| Purchases | Sales | ||
|
Duff & Phelps Select MLP and Energy
Fund |
$ 8,057 | $ 4,455 | |
|
KAR Long/Short Equity
Fund |
32,439 | 46,164 |
There
were no purchases or sales of long-term U.S. Government and agency securities during the six months ended April 30, 2022.
Note 5. Capital Share Transactions
(reported in thousands)
Transactions in shares of capital stock,
during the periods ended as indicated below, were as follows:
| Duff & Phelps Select MLP and Energy Fund | |||||||
| Six
Months Ended April 30, 2022 (Unaudited) |
Year
Ended October 31, 2021 | ||||||
| SHARES | AMOUNT | SHARES | AMOUNT | ||||
| Class A | |||||||
| Shares sold | 635 | $ 6,686 | 240 | $ 2,035 | |||
| Reinvestment of distributions | 11 | 121 | 5 | 48 | |||
| Shares repurchased | (37) | (362) | (80) | (664) | |||
| Net Increase / (Decrease) | 609 | $ 6,445 | 165 | $ 1,419 | |||
| Class C | |||||||
| Shares sold | 18 | $ 179 | 24 | $ 193 | |||
| Reinvestment of distributions | — (1) | 3 | — (1) | 4 | |||
| Shares repurchased | (1) | (8) | (7) | (62) | |||
| Net Increase / (Decrease) | 17 | $ 174 | 17 | $ 135 | |||
| Class I | |||||||
| Shares sold | 244 | $ 2,503 | 27 | $ 212 | |||
| Shares Issued-Merger(2) | — | — | 2,835 | 24,844 | |||
| Reinvestment of distributions | 18 | 204 | 45 | 412 | |||
| Shares repurchased | (528) | (5,204) | (1,323) | (11,380) | |||
| Net Increase / (Decrease) | (266) | $ (2,497) | 1,584 | $ 14,088 | |||
| (1) | Amount is less than $500 or 500 shares. |
| (2) | See Note 11 in Notes to Financial Statements . |
20
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
| KAR Long/Short Equity Fund | |||||||
| Six
Months Ended April 30, 2022 (Unaudited) |
Year
Ended October 31, 2021 | ||||||
| SHARES | AMOUNT | SHARES | AMOUNT | ||||
| Class A | |||||||
| Shares sold and cross class conversions | 73 | $ 1,353 | 316 | $ 5,616 | |||
| Reinvestment of distributions | 1 | 23 | 1 | 24 | |||
| Shares repurchased and cross class conversions | (163) | (2,826) | (97) | (1,740) | |||
| Net Increase / (Decrease) | (89) | $ (1,450) | 220 | $ 3,900 | |||
| Class C | |||||||
| Shares sold and cross class conversions | 1 | $ 16 | 8 | $ 134 | |||
| Reinvestment of distributions | — (1) | 1 | — (1) | 4 | |||
| Shares repurchased and cross class conversions | (1) | (22) | (14) | (252) | |||
| Net Increase / (Decrease) | — (1) | $ (5) | (6) | $ (114) | |||
| Class I | |||||||
| Shares sold and cross class conversions | 834 | $ 15,013 | 3,139 | $ 56,417 | |||
| Reinvestment of distributions | 29 | 563 | 59 | 1,028 | |||
| Shares repurchased and cross class conversions | (1,671) | (28,810) | (1,808) | (32,101) | |||
| Net Increase / (Decrease) | (808) | $ (13,234) | 1,390 | $ 25,344 | |||
| Class R6 | |||||||
| Shares sold and cross class conversions | 18 | $ 321 | 12 | $ 204 | |||
| Reinvestment of distributions | — (1) | 1 | — (1) | — (1) | |||
| Net Increase / (Decrease) | 18 | $ 322 | 12 | $ 204 | |||
| (1) | Amount is less than $500 or 500 shares. |
Note 6. 10% Shareholders
As of April 30, 2022, each Fund had
individual shareholder account(s) and/or omnibus shareholder account(s) (comprised of a group of individual shareholders), which individually amounted to more than 10% of the total shares outstanding of such Fund as detailed below:
| %
of Shares Outstanding |
Number
of Accounts | ||
|
Duff & Phelps Select MLP and Energy
Fund |
29% | 3 * | |
|
KAR Long/Short Equity
Fund |
89 | 2 |
| * | Includes affiliated shareholder account(s). |
Note 7. Market Risk and Asset Concentration
Local, regional or global events such as
war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on a Fund and its investments, including hampering the ability of the Fund’s portfolio
manager(s) to invest the Fund’s assets as intended.
In countries with limited or developing
markets, investments may present greater risks than in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market
prices of these investments and the income they generate, as well as a Fund’s ability to repatriate such amounts.
The Funds may invest a high percentage of
their assets in specific sectors of the market in the pursuit of their investment objectives. Fluctuations in these sectors of concentration may have a greater impact on a Fund, positive or negative, than if the Fund did not concentrate its
investments in such sectors.
At April
30, 2022, the Funds held securities issued by various companies in specific sectors as detailed below:
| Sector | Percentage
of Total Investments | ||
|
Duff & Phelps Select MLP and Energy
Fund |
Gathering/Processing | 25% | |
|
KAR Long/Short Equity
Fund |
Information Technology | 34 |
21
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
Note 8. Indemnifications
Under the Trust’s organizational
documents and in separate agreements between each Trustee and the Trust, its Trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust and its funds. In addition, in the normal
course of business, the Trust and the Funds enter into contracts that provide a variety of indemnifications to other parties. The Trust’s and/or the Funds’ maximum exposure under these arrangements is unknown, as this would involve
future claims that may be made against the Trust or the Funds and that have not occurred. However, neither the Trust nor the Funds have had prior claims or losses pursuant to these arrangements, and they expect the risk of loss to be remote.
Note 9. Redemption Facility
($ reported in thousands)
On September 18, 2017, Duff & Phelps
Select MLP and Energy Fund and certain other affiliated funds entered into an $150,000 unsecured line of credit (“Credit Agreement”). On June 14, 2021, the Credit Agreement was increased to a $250,000 unsecured line of credit. KAR
Long/Short Equity Fund was added to the Credit Agreement in March of 2019. This Credit Agreement, as amended, is with a commercial bank that allows the Funds to borrow cash from the bank to manage large unexpected redemptions and trade fails, up to
a limit of one-third or one-fifth of total net assets for the Funds, in accordance with the terms of the agreement. This Credit Agreement has a term of 364 days and has been renewed for a period up to March 9, 2023. Interest is charged at the higher
of the LIBOR or the Federal Funds rate plus an additional percentage rate on the amount borrowed. Commitment fees are charged on the undrawn balance. Total commitment fees paid for the six months ended April 30, 2022, are included in the
“Interest expense and/or commitment fees” line on the Statements of Operations. The Funds and other affiliated funds that are parties are individually, and not jointly, liable for their particular advances, if any, under the Credit
Agreement. The lending bank has the ability to require repayment of outstanding borrowings under this credit agreement upon certain circumstances such as an event of default.
Each Fund had an outstanding loan during the
period. The borrowings were valued at cost, which approximates fair value.
| Fund | Interest
Incurred on Borrowing |
Average
Dollar Amount of Borrowing |
Weighted
Average Interest Rate on Borrowing |
Days
Loan was Open | ||||
|
Duff & Phelps Select MLP And Energy
Fund |
$— (1) | $ 380 | 1.56% | 5 | ||||
|
KAR Long/Short Equity
Fund |
1 | 4,475 | 1.08 | 4 |
| (1) | Amount is less than $500. |
Note 10. Federal Income Tax Information
($ reported in thousands)
At April 30, 2022, the approximate aggregate
cost basis and the unrealized appreciation (depreciation) of investments and other financial instruments for federal income tax purposes were as follows:
| Fund | Federal
Tax Cost |
Unrealized
Appreciation |
Unrealized
(Depreciation) |
Net
Unrealized Appreciation (Depreciation) | ||||
|
Duff & Phelps Select MLP and Energy
Fund |
$ 27,246 | $ 6,366 | $ (551) | $ 5,815 | ||||
|
KAR Long/Short Equity
Fund |
102,434 | 24,810 | (5,873) | 18,937 | ||||
|
KAR Long/Short Equity Fund (Short Sales)
|
(24,230) | 2,780 | (98) | 2,682 |
22
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
The Funds have capital-loss carryforwards
available to offset future realized capital gains, if any, to the extent permitted by the Code. Net capital losses are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. The
capital loss carryforwards acquired in the reorganization of Duff & Phelps Select MLP and Midstream Energy Fund Inc. into the Duff & Phelps Select MLP and Energy Fund on June 25, 2021 (See Note 11) are subject to expiration. For the fiscal
year ended October 31, 2021, the Funds’ capital loss carryovers were as follows:
| Fund | Short-Term | Long-Term | ||
|
Duff & Phelps Select MLP and Energy
Fund |
||||
|
Expires 10/31/2022
|
$ 8,127 | — | ||
|
Expires 10/31/2023
|
15,978 | — | ||
|
Expires 10/31/2024
|
91,225 | — | ||
|
Sub Total
|
115,330 | — | ||
|
No Expiration
|
234 | $433 | ||
|
Total
|
$115,564 | $433 |
Note 11. Reorganization
($ reported in thousands)
On February 1, 2021, the Board of Trustees
of the Trust approved an Agreement and Plan of Reorganization (the “Plan”) with respect to Duff & Phelps Select MLP and Midstream Energy Fund Inc. (the “Merged Fund”) and Duff & Phelps Select MLP and Energy Fund (the
“Acquiring Fund”), a series of the Trust, which provided for the transfer of all of the assets of the Merged Fund for shares of the Acquiring Fund and the assumption of the liabilities of the Merged Fund. The purpose of the transaction
was to address a significant decrease in the assets of the Merged Fund in a way that would allow shareholders of both funds to own shares of a larger combined fund and allow shareholders of the Merged Fund to own shares of a fund with a similar
investment objective and style as, and potentially lower expenses than, the Merged Fund. The reorganization was accomplished by a tax-free exchange of shares on June 25, 2021. The Merged Fund’s investments were transferred at fair market value
to the Acquiring Fund on the merger date.
The share transactions associated with the
merger are as follows:
| Merged Fund | Shares Outstanding | Acquiring Fund | Shares Converted | Merged
Fund Net Asset Value of Converted Shares | ||||||
| Duff
& Phelps Select MLP and Midstream Energy Fund Inc. |
2,623,355 | Duff
& Phelps Select MLP and Energy Fund |
Class I | 2,834,705 | $24,844 | |||||
The net assets
before the acquisition were as follows:
| Merged Fund | Net
Assets |
Acquiring
Fund |
Net
Assets | |||
| Duff
& Phelps Select MLP and Midstream Energy Fund Inc. |
$24,844 | Duff
& Phelps Select MLP and Energy Fund |
$9,617 |
The net assets of
the Acquiring Fund immediately following the acquisition were $34,461.
Assuming the acquisition had been completed
on November 1, 2020 the Duff & Phelps Select MLP and Energy Fund’s pro-forma results of operations for the period ended October 31, 2021, would have been as follows:
|
Net investment income
(loss) |
$(1,023)(a) |
|
Net realized and unrealized gain (loss) on
investments |
15,555 (b) |
|
Net increase (decrease) in net assets resulting from
operations |
$14,532 |
(a) $32, as reported in the Statement of Operations, plus $(1,055) Net investment income from Duff & Phelps Select MLP and
Midstream Energy Fund Inc. pre-merger.
(b) $5,106, as reported in the Statement of Operations, plus $10,449 Net realized and unrealized gain (loss) on investments from
Duff & Phelps Select MLP and Midstream Energy Fund Inc. pre-merger.
23
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
April 30, 2022
Because the Merged Fund and Acquiring Fund
have been managed as an integrated single fund since the completion date, it is not feasible to separate the income/(losses) and gains/(losses) of the Merged Fund that have been included in the Acquiring Fund’s Statement of Operations since
June 25, 2021.
Note 12. Regulatory Matters and
Litigation
From time to time, the Trust, the Funds, the
Adviser and/or the subadvisers and/or their affiliates may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance with, among other things,
securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting their products and other activities. At this time, the Adviser believes that the outcomes of such matters are not
likely, either individually or in aggregate, to be material to these financial statements.
Note 13. Subsequent Events
Management has evaluated the impact of all
subsequent events on the Funds through the date the financial statements were available for issuance, and has determined that there are no subsequent events requiring recognition or disclosure in these financial statements.
24
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
FOR VIRTUS DUFF & PHELPS SELECT MLP AND
ENERGY FUND AND
VIRTUS KAR LONG/SHORT EQUITY FUND (each a
“FUND” and collectively, the “FUNDS”)
BY THE
BOARD OF TRUSTEES (Unaudited)
The Board of Trustees (the
“Board”) of Virtus Alternative Solutions Trust (the “Trust”) is responsible for determining whether to approve the continuation of the investment advisory agreement (the “Advisory Agreement”) between the Trust and
Virtus Alternative Investment Advisers, Inc. (“VAIA”) and of each subadvisory agreement (each, a “Subadvisory Agreement” and collectively, the “Subadvisory Agreements”)(together with the Advisory Agreement, the
“Agreements”) among the Trust, VAIA and Duff & Phelps Investment Management Co. (“Duff & Phelps”) with respect to Virtus Duff & Phelps Select MLP and Energy Fund; and among the Trust, VAIA and Kayne Anderson
Rudnick Investment Management, LLC (“KAR”) with respect to Virtus KAR Long/Short Equity Fund (each of Duff & Phelps and KAR, a “Subadviser” and collectively, the “Subadvisers”). At virtual meetings held on
November 2, 2021 and November 15-17, 2021 (the “Meetings”), the Board, including a majority of the Trustees who are not interested persons of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended
(such Act, the “1940 Act” and such Trustees, the “Independent Trustees”), considered and approved the continuation of each Agreement, as further discussed below. In addition, prior to the Meetings, the Independent Trustees
met with their independent legal counsel to discuss and consider the information provided by management and submitted questions to management, and they considered the responses provided.
In connection with the approval of the
Agreements, the Board requested and evaluated information provided by VAIA and each Subadviser which, in the Board’s view, constituted information necessary for the Board to form a judgment as to whether the renewal of each of the Agreements
would be in the best interests of each applicable Fund and its respective shareholders. The Board also considered information furnished throughout the year at regular Board meetings with respect to the services provided by VAIA and the Subadvisers,
including quarterly performance reports prepared by management containing reviews of investment results and periodic presentations from the Subadvisers with respect to the Fund(s) they manage. The Board noted the affiliation of the Subadvisers with
VAIA and any potential conflicts of interest.
The Board was separately advised by
independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the applicable Fund and its shareholders. In its deliberations, the Board considered various factors, including
those discussed below, none of which were controlling, and each Trustee may have attributed different weights to the various factors. The Independent Trustees also discussed the proposed approval of the Agreements in private sessions with their
independent legal counsel at which no representatives of management were present.
In considering whether to approve the
renewal of the Agreements with respect to each Fund, the Board reviewed and analyzed the factors it deemed relevant, including: (a) the nature, extent and quality of the services provided to the Funds by VAIA and each of the Subadvisers; (b) the
performance of the Funds as compared to an appropriate peer group and an appropriate index; (c) the level and method of computing each Fund’s advisory and subadvisory fees, and comparisons of the Funds’ advisory fee rates and total
expenses with those of a group of funds with similar investment objective(s); (d) the profitability of VAIA under the Advisory Agreement; (e) any “fall-out” benefits to VAIA, the Subadvisers and their affiliates (i.e., ancillary benefits realized by VAIA, the Subadvisers or their affiliates from VAIA’s or the Subadvisers’ relationship with the Trust); (f) the anticipated effect of growth in size on each
Fund’s performance and expenses; (g) fees paid to VAIA and the Subadvisers by comparable accounts, as applicable; (h) possible conflicts of interest; and (i) the terms of the Agreements.
Nature,
Extent and Quality of Services
The Trustees received in advance of the
Meetings information provided by VAIA and each Subadviser, including completed questionnaires concerning a number of topics, including, among other items, such company’s investment philosophy, investment process and strategies, resources and
personnel, operations, compliance structure and procedures, and overall performance. The Trustees noted that the Funds are managed using a “manager of managers” structure that generally involves the use of one or more subadvisers to
manage some or all of a Fund’s portfolio. Under this structure, VAIA is responsible for the management of the Funds’ investment programs and for evaluating and selecting subadvisers on an ongoing basis and making any recommendations to
the Board regarding hiring, retaining or replacing subadvisers. In considering the Advisory Agreement with VAIA, the Board considered VAIA’s process for supervising and managing the Funds’ subadvisers, including (a) VAIA’s ability
to select and monitor the subadviser(s); (b) VAIA’s ability to provide the services necessary to monitor subadvisers’ compliance with the Funds’ respective investment objective(s), policies and restrictions as well as provide other
oversight activities; and (c) VAIA’s ability and willingness to identify instances in which a subadviser should be replaced and to carry out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s
management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to provide a high level and quality of services to the Funds; (c) the quality of VAIA’s own regulatory and legal compliance
policies, procedures and systems; (d) the nature, extent and quality of administrative, transfer agency and other services provided by VAIA and its affiliates to the Funds; (e) VAIA’s supervision of the Funds’ other service providers;
and (f) VAIA’s risk management processes. It was noted that affiliates of VAIA serve as administrator, transfer agent and distributor of the Funds. The Board also took into account its knowledge of VAIA’s management and the quality of
the performance of VAIA’s duties through Board meetings, discussions and reports during the preceding
25
year, as well
as information from the Trust’s Chief Compliance Officer regarding the Funds’ compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act.
With respect to the services provided by
each of the Subadvisers, the Board considered information provided to the Board by each Subadviser, including each Subadviser’s Form ADV, as well as information provided throughout the past year. With respect to the Subadvisory Agreements, the
Board noted that each Subadviser provided portfolio management, compliance with the respective Fund’s investment policies and procedures, compliance with applicable securities laws and assurances thereof. The Board also noted that VAIA’s
and each Subadviser’s management of the respective Fund is subject to the oversight of the Board and must be carried out in accordance with the investment objective(s), policies and restrictions set forth in the Fund’s summary and
statutory prospectuses and statement of additional information. In considering the renewal of the Subadvisory Agreements, the Board also considered each Subadviser’s investment management process, including (a) the experience and capability of
the Subadviser’s management and other personnel committed by the Subadviser to the respective Fund; (b) the financial condition of the Subadviser; (c) the quality of the Subadviser’s regulatory and legal compliance policies, procedures
and systems; and (d) the Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account each Subadviser’s risk assessment and monitoring process. The Board noted
each Subadviser’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate.
After considering all of the information
provided to them, the Trustees concluded that the nature, extent and quality of the services provided by VAIA and each Subadviser were satisfactory and that there was a reasonable basis on which to conclude that each would continue to provide a high
quality of investment services to the applicable Fund.
Investment
Performance
The Board
considered performance reports and discussions at Board meetings throughout the year, as well as a report (the “Broadridge Report”) for the Funds prepared by Broadridge, an independent third party provider of investment company data,
furnished in connection with the contract renewal process. The Broadridge Report presented each Fund’s performance relative to a peer group of other mutual funds (the “Performance Universe”) and relevant indexes, as selected by
Broadridge. The Board also considered performance information presented by management and took into account management’s discussion of the same, including the effect of market conditions on each Fund’s performance. The Board evaluated
each Fund’s performance in the context of the considerations that a “manager of managers” structure requires. The Board noted that it also reviews on a quarterly basis detailed information about both the Funds’ performance
results and their respective portfolio compositions, as well as each Subadviser’s investment strategy(ies). The Board noted VAIA’s expertise and resources in monitoring the performance, investment style and risk-adjusted performance of
each Subadviser. The Board also noted each Subadviser’s performance record with respect to each applicable Fund. The Board was mindful of VAIA’s focus on each Subadviser’s performance and noted VAIA’s performance in
monitoring and responding to any performance issues with respect to the Funds. The Board also took into account its discussions with management regarding factors that contributed to the performance of each Fund.
The Board considered, among other
performance data, the information set forth below with respect to the performance of each Fund for the period ended June 30, 2021.
Virtus
Duff & Phelps Select MLP and Energy Fund. The Board noted that the Fund outperformed the median of its Performance Universe for the 1-, 3- and 5-year periods and outperformed its benchmark for the
3- and 5-year periods. The Board also noted that the Fund underperformed the benchmark for the 1-year period.
Virtus
KAR Long/Short Equity Fund. The Board noted that the Fund underperformed the median of its Performance Universe for the year-to-date period and underperformed its benchmark for the year-to-date and
1-year period. The Board also noted that the Fund outperformed the median of its Performance Universe for the 1-year period.
After reviewing these and related factors,
the Board concluded that each Fund’s overall performance was satisfactory.
Management
Fees and Total Expenses
The
Board considered the fees charged to the Funds for advisory services as well as the total expense levels of the Funds. This information included comparisons of each Fund’s contractual and net management fee and net total expense level to those
of its peer universe (the “Expense Universe”) and ranked according to quintile (the first quintile being lowest and, therefore, best in these expense component rankings, and fifth being highest and, therefore, worst in these expense
component rankings). In comparing each Fund’s net management fee to that of comparable funds, the Board noted that in the materials presented by management such fee was comprised of advisory fees. The Board also noted that both of the Funds
had expense caps in place to limit the total expenses incurred by the Funds and their shareholders. The Board also noted that the subadvisory fees were paid by VAIA out of its advisory fees rather than paid separately by the Funds. In this
regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The
26
Board also
took into account the size of each of the Funds and the impact on expenses and economies of scale. The Subadvisers provided, and the Board considered, fee information of comparable accounts managed by the Subadvisers, as applicable.
In addition to the foregoing, the Board
considered, among other data, the information set forth below with respect to each Fund’s fees and expenses. In each case, the Board took into account management’s discussion of each Fund’s expenses, including the type and size of
the Fund relative to the other funds in its Expense Universe.
Virtus
Duff & Phelps Select MLP and Energy Fund. The Board considered that the Fund’s net management fee was in the first quintile of the Expense Universe and net total expenses after waivers were in
the second quintile of the Expense Universe.
Virtus
KAR Long/Short Equity Fund. The Board considered that the Fund’s net management fee was in the fourth quintile of the Expense Universe and net total expenses after waivers were in the fifth
quintile of the Expense Universe.
The Board concluded that the advisory and
subadvisory fees for each Fund, including with any proposed amendments, were fair and reasonable in light of the usual and customary charges made for services of the same nature and quality and the other factors considered.
Profitability
The Board also considered
certain information relating to profitability that had been provided by VAIA. In this regard, the Board considered information regarding the overall profitability, as well as on a fund-by-fund basis, of VAIA for its management of the Funds, as well
as its profits and those of its affiliates for managing and providing other services to the Trust, such as distribution, transfer agency and administrative services provided to the Funds by VAIA affiliates. In addition to the fees paid to VAIA and
its affiliates, including the Subadvisers, the Board considered any other benefits derived by VAIA or its affiliates from their relationships with the Funds. The Board reviewed the methodology used to allocate costs to each Fund, taking into account
the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. The Board concluded that the profitability to VAIA and its affiliates from each Fund was
reasonable in light of the quality of the services rendered to the Funds by VAIA and its affiliates as well as other factors.
In considering the profitability to the
Subadvisers in connection with their relationships to the Funds, the Board noted that the fees under the Subadvisory Agreements are paid by VAIA out of the fees that VAIA receives under the Advisory Agreement, so that Fund shareholders are not
directly impacted by those fees. In considering the reasonableness of the fees payable by VAIA to the Subadvisers, the Board noted that, because such Subadvisers are affiliates of VAIA, such profitability might be directly or indirectly shared by
VAIA. For each of the above reasons, the Board concluded that the profitability to the Subadvisers and their affiliates from their relationship with the Funds was not a material factor in approval of the Subadvisory Agreements.
Economies
of Scale
The Board received
and discussed information concerning whether VAIA realizes economies of scale as the Funds’ assets grow. The Board noted that the management fees for the Funds included breakpoints based on assets under management, and that expense caps were
also in place for all of the Funds. The Board also took into account management’s discussion of each Fund’s management fee and subadvisory fee structure. The Board also took into account the current sizes of the Funds. The Board also
noted that VAIA had agreed to implement an extension of each Fund’s expense cap through February 28, 2023. The Board then concluded that no changes to the advisory fee structure of the Funds with respect to economies of scale were necessary at
this time. The Board noted that VAIA and the Funds may realize certain economies of scale if the assets of the Funds were to increase, particularly in relationship to certain fixed costs, and that shareholders of the Funds would have an opportunity
to benefit from these economies of scale.
For similar reasons as stated above with
respect to the Subadvisers’ profitability, and based upon the current size of the Fund managed by each Subadviser, the Board concluded that the potential for economies of scale in the Subadvisers’ management of the Funds was not a
material factor in the approval of the Subadvisory Agreements at this time.
Other
Factors
The Board considered
other benefits that may be realized by VAIA and each Subadviser and their affiliates from their relationships with the Funds. Among them, the Board recognized that VP Distributors, LLC, an affiliate of VAIA and the Subadvisers, serves as the
distributor for the Trust, and, as such, receives payments pursuant to Rule 12b-1 from the Funds to compensate it for providing selling activities, which could lead to growth in the Trust’s assets and corresponding benefits from such growth,
including economies of scale. The Board noted that an affiliate of VAIA and the Subadvisers also provides administrative and transfer agency services to the Trust. The Board noted management’s discussion of the fact that, while the Subadvisers
are affiliates of VAIA, there are no other direct benefits to the Subadvisers or VAIA in providing investment advisory services to the Fund(s), other than the fee to be earned under the applicable Agreement(s). There may be certain indirect
benefits gained, including to the extent that serving the Fund(s) could provide the opportunity to provide advisory services to additional portfolios of the Trust or certain reputational benefits.
27
Conclusion
Based on all of the foregoing
considerations, the Board, including a majority of the Independent Trustees, determined that approval of each Agreement, as amended, was in the best interests of each applicable Fund and its respective shareholders. Accordingly, the Board, and the
Independent Trustees voting separately, approved the Agreements, as amended, with respect to each Fund.
28
VIRTUS ALTERNATIVE SOLUTIONS
TRUST
101 Munson Street
Greenfield, MA 01301-9668
Important Notice to Shareholders
The Securities and Exchange Commission has modified mailing regulations for semiannual and annual shareholder fund reports to allow mutual fund companies to send a single copy of these reports to shareholders who share the same mailing address. If you would like additional copies, please call Mutual Fund Services at 1-800-243-1574.
The Securities and Exchange Commission has modified mailing regulations for semiannual and annual shareholder fund reports to allow mutual fund companies to send a single copy of these reports to shareholders who share the same mailing address. If you would like additional copies, please call Mutual Fund Services at 1-800-243-1574.
P.O. Box 9874
Providence, RI 02940-8074
For more
information about Virtus Mutual Funds,
please contact us at 1-800-243-1574, or visit Virtus.com.
please contact us at 1-800-243-1574, or visit Virtus.com.
| 8554 | 06-22 |
| Item 2. | Code of Ethics. |
Not applicable.
| Item 3. | Audit Committee Financial Expert. |
Not applicable.
| Item 4. | Principal Accountant Fees and Services. |
Not applicable.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | Investments. |
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1(a) of this form. |
| (b) | Not applicable. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
| Item 11. | Controls and Procedures. |
| (a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) are effective, based on an evaluation of those controls and procedures made as of a date within 90 days of the filing date of this report as required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Exchange Act. |
| (b) | There has been no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not applicable.
| Item 13. | Exhibits. |
| (a)(1) | Not applicable. |
| (a)(2) |
| (a)(2)(1) | Not applicable. |
| (a)(2)(2) | Not applicable. |
| (b) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Virtus Alternative Solutions Trust |
| By (Signature and Title)* | /s/ George R. Aylward |
|||
| George R. Aylward, President (principal executive officer) |
||||
| Date | 7/1/22 |
|||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ George R. Aylward |
|||
| George R. Aylward, President (principal executive officer) |
| Date | 7/1/22 |
|||
| By (Signature and Title)* | /s/ W. Patrick Bradley |
|||
| W. Patrick Bradley, Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer) |
||||
| Date | 7/1/22 |
|||
| * | Print the name and title of each signing officer under his or her signature. |