N-CSR 1 g51156virtusequitytrust_ncsr.txt VIRTUS EQUITY TRUST N-CSR 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 811-00945 --------- Virtus Equity Trust (formerly, Phoenix Equity Trust) ---------------------------------------------------- (Exact name of registrant as specified in charter) 101 Munson Street Greenfield, MA 01301-9668 ---------------------------------------------------- (Address of principal executive offices) (Zip code) Kevin J. Carr, Esq. Vice President, Chief Legal Officer, Counsel and Secretary for the Registrant 100 Pearl Street 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: March 31 -------- Date of reporting period: March 31, 2009 -------------- 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, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. The Report to Shareholders is attached herewith. ANNUAL REPORT (VIRTUS MUTUAL FUNDS LOGO) Virtus All-Cap Growth Fund Virtus Growth & Income Fund Virtus Growth Opportunities Fund Virtus Income & Growth Fund Virtus Mid-Cap Growth Fund Virtus Quality Small-Cap Fund* Virtus Small-Cap Core Fund* Virtus Small-Cap Growth Fund Virtus Small-Cap Sustainable Growth Fund* Virtus Strategic Growth Fund Virtus Value Opportunities Fund * Prospectus Supplement applicable to these Funds appears at the back of this Annual Report. ================================================================================ WOULDN'T YOU RATHER HAVE THIS DOCUMENT E-MAILED TO YOU? TRUST NAME: ELIGIBLE SHAREHOLDERS CAN SIGN VIRTUS EQUITY TRUST March 31, 2009 UP FOR E-DELIVERY AT VIRTUS.COM NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE TABLE OF CONTENTS Message to Shareholders .................................................................................... 1 Glossary ................................................................................................... 2 Disclosure of Fund Expenses ................................................................................ 4 SCHEDULE FUND OF FUND* SUMMARY INVESTMENTS Virtus All-Cap Growth Fund ("All-Cap Growth Fund") ............................................ 6 28 Virtus Growth & Income Fund ("Growth & Income Fund") .......................................... 8 29 Virtus Growth Opportunities Fund ("Growth Opportunities Fund") ................................ 10 30 Virtus Income & Growth Fund ("Income & Growth Fund")** ........................................ 12 31 Virtus Mid-Cap Growth Fund ("Mid-Cap Growth Fund") ............................................ 14 35 Virtus Quality Small-Cap Fund ("Quality Small-Cap Fund") ...................................... 16 36 Virtus Small-Cap Core Fund ("Small-Cap Core Fund") (formerly "Virtus Small-Mid Cap Value Fund") ............................................... 18 37 Virtus Small-Cap Growth Fund ("Small-Cap Growth Fund") ........................................ 20 38 Virtus Small-Cap Sustainable Growth Fund ("Small-Cap Sustainable Growth Fund") ................ 22 39 Virtus Strategic Growth Fund ("Strategic Growth Fund") ........................................ 24 40 Virtus Value Opportunities Fund ("Value Opportunities Fund") .................................. 26 41 Statements of Assets and Liabilities ............................................................. 44 Statements of Operations ......................................................................... 46 Statements of Changes in Net Assets .............................................................. 48 Financial Highlights ............................................................................. 56 Notes to Financial Statements .................................................................... 68 Report of Independent Registered Public Accounting Firm .......................................... 82 Tax Information Notice ........................................................................... 83 Consideration of Advisory and Subadvisory Agreements by the Board of Trustees .................... 84 Results of Shareholder Meetings .................................................................. 87 Fund Management Tables ........................................................................... 88
* Please see Notes 1 and 3 in the Notes to Financial Statements for more information about the name change. ** Please see Note 15 in the Notes to Financial Statements. -------------------------------------------------------------------------------- PROXY VOTING PROCEDURES AND VOTING RECORD (FORM N-PX) The adviser and subadvisers vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Trust's Board of Trustees. 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, 2008, free of charge, by calling toll-free 800-541-0171. This information is also available through the Securities and Exchange Commission's website at http://www.sec.gov. FORM N-Q INFORMATION The Trust files a complete schedule of portfolio holdings for each Fund with the Securities and Exchange Commission (the "SEC") for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC's website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330. -------------------------------------------------------------------------------- This report is not authorized for distribution to prospective investors in the funds of Virtus Equity Trust unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, each Fund's record and other pertinent information. MESSAGE TO SHAREHOLDERS Dear Fellow Shareholders of Virtus Mutual Funds: (PHOTO OF GEORGE R. AYLWARD) After the unprecedented economic events of 2008, investors were ready to greet the new year with great expectations. Instead, we were sorely disappointed. The first quarter of 2009 brought more dismal economic news as the worst financial crisis since the Great Depression continued, seemingly unabated. Consumer confidence and business sentiment spiraled downward on poor corporate earnings and woeful economic data. Major stock market indices posted their worst January and February returns on record, ultimately leading to a sixth straight down quarter. The new administration in Washington, D.C. responded with an alphabet-soup of financial recovery programs - TARP (Troubled Asset Relief Program), TALF (Term Asset-Backed Securities Loan Facility) and CAP (Capital Assistance Program) - conducted stress tests of troubled banks and took extreme measures in an attempt to rescue two of the "Big Three" automakers. But by March 9th, the Dow Jones Industrial Average(SM) was down 25.4 percent from the start of the year and the S&P 500(R) Index was off 27.4 percent. Then a number of promising signs appeared. Credit markets exhibited tentative evidence of stabilizing and the manufacturing sector reported modest increases in new orders. Retail sales gained slightly, and for the first time in two years the housing markets in some regions of the country indicated they may have hit bottom. There was a bounce in the financial markets, and March ended with the best monthly stock gains in more than six years. Whether this is the start of a significant "V"-shaped recovery or a temporary upswing of a "W" recovery remains to be seen. The second quarter began with a sprinkling of encouraging corporate earnings, and unemployment - while still a significant drag on the economy - shows signs of slowing. Questions remain on the effectiveness of the government's economic interventions, as well as the long-term impact of increasing budget deficits, yet we entered the second quarter with a glimmer of hope. The uncertainties of the economy are another reminder that investors should rely on the discipline and focus of professional investment managers and financial advisors when making decisions about personal investments. We encourage you to meet with your financial advisor and periodically review your portfolio to ensure it reflects your current investment objectives, your tolerance for risk, and your long-term financial goals. At Virtus, our commitments to quality investment solutions and superior customer service remain unchanged. We offer a wide range of equity, fixed income, and money market funds as well as alternative strategies that you may wish to consider as you review your investments. We recognize the economy and financial markets still face substantial challenges, but our investment professionals remain committed to identifying the right options for your long-term investment needs. Your confidence in Virtus Mutual Funds is deeply appreciated. Sincerely, /s/ George R. Aylward ------------------------------------- George R. Aylward President, Virtus Mutual Funds MAY 1, 2009 WHENEVER YOU HAVE QUESTIONS ABOUT YOUR ACCOUNT OR REQUIRE ADDITIONAL INFORMATION, PLEASE VISIT US AT www.virtus.com OR CALL OUR SHAREOWNER SERVICES GROUP, TOLL FREE, AT 800-243-1574. 1 GLOSSARY ADR (AMERICAN DEPOSITARY RECEIPT) ISHARES(R) Represents shares of foreign companies traded in U.S. dollars on Represents shares of an open-end Exchange-Traded Fund. U.S. exchanges that are held by a bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to MBIA buy their shares. Municipal Bond Insurance Association BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX PPIP (PUBLIC-PRIVATE INVESTMENT PROGRAM) (formerly Lehman Brothers Aggregate Bond Index) The Barclays A plan designed to value and remove troubled assets from the Capital U.S. Aggregate Bond Index measures the U.S. investment balance sheet of troubled financial institutions in the U.S. grade fixed rate bond market. The index is calculated on a total Public-Private Investment Program consists mainly of two parts: a return basis. Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program uses FDIC-guaranteed debt along with private equity CAP (CAPITAL ASSISTANCE PROGRAM) to purchase troubled loans from banks. On the other hand, the An element of the financial stability plan launched by the U.S. Legacy Securities Program is designed to use funds from the Department of Treasury to regain confidence in the financial Federal Reserve, Treasury and private investors to reignite the industry. In this program, the U.S. Treasury makes capital market for legacy securities. Legacy securities include certain available for financial institutions to borrow in order to enable mortgage-backed securities, asset-backed securities and other them to continue to serve the public. securitized assets that the government deems to be eligible for the program. CPI (CONSUMER PRICE INDEX) Measures the pace of inflation by measuring the change in REIT (REAL ESTATE INVESTMENT TRUST) consumer prices of goods and services, including housing, A publicly traded company that owns, develops and operates electricity, food, and transportation, as determined by a monthly income-producing real estate such as apartments, office survey of the U.S. Bureau of Labor Statistics. buildings, hotels, shopping centers and other commercial properties. ETF (EXCHANGE-TRADED FUNDS) Portfolios of stocks or bonds that track a specific market index. RUSSELL 1000(R) GROWTH INDEX The Russell 1000(R) Growth Index is a market FASB capitalization-weighted index of growth-oriented stocks of the Financial Accounting Standards Board 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a FEDERAL RESERVE (THE "FED") total return basis with dividends reinvested. The central bank of the United States, responsible for controlling the money supply, interest rates and credit with the RUSSELL 1000(R) VALUE INDEX goal of keeping the U.S. economy and currency stable. Governed by The Russell 1000(R) Value Index is a market a seven-member board, the system includes 12 regional Federal capitalization-weighted index of value-oriented stocks of the Reserve Banks, 25 branches and all national and state banks that 1,000 largest companies in the Russell Universe, which comprises are part of the system. the 3,000 largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. FGIC Financial Guaranty Insurance Company RUSSELL 2000(R) INDEX The Russell 2000(R) Index is a market capitalization-weighted FHLMC index of the 2,000 smallest companies in the Russell Universe, Federal Home Loan Mortgage Corporation which comprises the 3,000 largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. FNMA OR "FANNIE MAE" Federal National Mortgage Association RUSSELL 2000(R) GROWTH INDEX The Russell 2000(R) Growth Index is a market GNMA OR "GINNIE MAE" capitalization-weighted index of growth-oriented stocks of the Government National Mortgage Association smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a INCOME & GROWTH FUND COMPOSITE INDEX total return basis with dividends reinvested. A composite index consisting of 50% S&P 500(R) Index, which measures stock market total return performance, and 50% Barclays Capital U.S. Aggregate Bond Index, which measures bond market total return performance.
2 GLOSSARY (CONTINUED) RUSSELL 2000(R) VALUE INDEX S&P 500(R) INDEX The Russell 2000(R) Value Index is a market The S&P 500(R) Index is a free-float market capitalization-weighted index of value-oriented stocks of the capitalization-weighted index of 500 of the largest U.S. smallest 2,000 companies in the Russell Universe, which comprises companies. The index is calculated on a total return basis with the 3,000 largest U.S. companies. The index is calculated on a dividends reinvested. total return basis with dividends reinvested. SPDR(R) RUSSELL 2500(TM) INDEX S&P Depositary Receipt The Russell 2500(TM) Index is a market capitalization-weighted index of the 2,500 smallest companies in the Russell Universe, SPONSORED ADR (AMERICAN DEPOSITARY RECEIPT) which comprises the 3,000 largest U.S. companies. The index is An ADR which is issued with the cooperation of the company whose calculated on a total return basis with dividends reinvested. stock will underlie the ADR. These shares carry all the rights of the common share such as voting rights. ADRs must be sponsored to RUSSELL 3000(R) GROWTH INDEX be able to trade on the NYSE. The Russell 3000(R) Growth Index is a market capitalization-weighted index of growth-oriented stocks of U.S. TALF (TERM ASSET-BACKED SECURITIES LOAN FACILITY) companies. The index is calculated on a total return basis with The TALF is intended to assist the credit markets in dividends reinvested. accommodating the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and RUSSELL MIDCAP(R) INDEX improving the market conditions for ABS more generally. The Russell Midcap(R) Index is a market capitalization-weighted index of medium-capitalization stocks of U.S. companies. The TARP (TROUBLED ASSET RELIEF PROGRAM) index is calculated on a total return basis with dividends A government program created for the establishment and management reinvested. of a Treasury fund in an attempt to curb the ongoing financial crisis of 2007-2008. The fund was created by enacting the RUSSELL MIDCAP(R) GROWTH INDEX Emergency Economic Stabilization Act of 2008. The Russell Midcap(R) Growth Index is a market capitalization-weighted index of medium-capitalization, TBA growth-oriented stocks of U.S. companies. The index is calculated To be announced on a total return basis with dividends reinvested. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS RUSSELL MIDCAP(R) VALUE INDEX Securities purchased on a when-issued or forward commitment basis The Russell Midcap(R) Value Index is a market are also known as delayed delivery transactions. Delayed delivery capitalization-weighted index of medium-capitalization, transactions involve a commitment by a Fund to purchase or sell a value-oriented stocks of U.S. companies. The index is calculated security at a future date, ordinarily up to 90 days later. on a total return basis with dividends reinvested. When-issued or forward commitments enable a Fund to lock in what is believed to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest rates. INDEXES ARE UNMANAGED AND NOT AVAILABLE FOR DIRECT INVESTMENT; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT THE EXPENSES ASSOCIATED WITH ACTIVE MANAGEMENT OF AN ACTUAL PORTFOLIO.
3 VIRTUS EQUITY TRUST DISCLOSURE OF FUND EXPENSES (UNAUDITED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 EXPENSE TABLE We believe it is important for you to understand the impact of --------------------------------------------------------------- costs on your investment. All mutual funds have operating Beginning Ending Annualized Expenses Paid expenses. As a shareholder of a Virtus Equity Trust Fund (the Account Value Account Value Expense During "Fund") you may incur two types of costs: (1) transaction costs, October 1, 2008 March 31, 2009 Ratio Period* including sales charges on purchases of Class A shares and --------------------------------------------------------------- contingent deferred sales charges on Class B and Class C shares; ALL-CAP GROWTH FUND and (2) ongoing costs, including investment advisory fees; --------------------------------------------------------------- distribution and service fees; and other expenses. Class I shares ACTUAL are sold without a sales charge and do not incur distribution and Class A $1,000.00 $ 741.50 1.91% $ 8.29 service fees. These examples are intended to help you understand Class B 1,000.00 739.10 2.65% 11.49 your ongoing costs (in dollars) of investing in a Fund and to Class C 1,000.00 737.90 2.66% 11.53 compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) invested at the beginning of the period and held for the entire Class A 1,000.00 1,015.29 1.91% 9.64 six-month period. The following Expense Tables illustrate your Class B 1,000.00 1,011.55 2.65% 13.38 Fund's costs in two ways. Class C 1,000.00 1,011.50 2.66% 13.43 --------------------------------------------------------------- ACTUAL EXPENSES GROWTH & INCOME FUND --------------------------------------------------------------- The first section of the accompanying tables provides ACTUAL information about actual account values and actual expenses. You Class A $1,000.00 $ 690.50 1.48% $ 6.24 may use the information in this section, together with the amount Class B 1,000.00 688.60 2.25% 9.47 you invested, to estimate the expenses that you paid over the Class C 1,000.00 687.40 2.24% 9.42 period. Simply divide your account value by $1,000 (for example, Class I 1,000.00 691.20 1.24% 5.23 an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your Fund under the heading HYPOTHETICAL (5% RETURN BEFORE EXPENSES) "Expenses Paid During Period" to estimate the expenses you paid Class A 1,000.00 1,017.46 1.48% 7.47 on your account during the period. Class B 1,000.00 1,013.57 2.25% 11.36 Class C 1,000.00 1,013.62 2.24% 11.31 HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES Class I 1,000.00 1,018.67 1.24% 6.26 --------------------------------------------------------------- The second section of the accompanying tables provides GROWTH OPPORTUNITIES FUND information about hypothetical account values and hypothetical --------------------------------------------------------------- expenses based on the Fund's actual expense ratio and an assumed ACTUAL rate of return of 5% per year before expenses, which is not your Class A $1,000.00 $ 727.40 1.25% $ 5.38 Fund's actual return. The hypothetical account values and Class C 1,000.00 724.40 2.00% 8.60 expenses may not be used to estimate the actual ending account Class I 1,000.00 729.20 1.00% 4.31 balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Fund and other funds. To do so, compare these 5% hypothetical Class A 1,000.00 1,018.62 1.25% 6.30 examples with the 5% hypothetical examples that appear in the Class C 1,000.00 1,014.83 2.00% 10.10 shareholder reports of the other funds. Class I 1,000.00 1,019.88 1.00% 5.04 --------------------------------------------------------------- Please note that the expenses shown in the accompanying tables INCOME & GROWTH FUND are meant to highlight your ongoing costs only and do not reflect --------------------------------------------------------------- any transactional costs, such as sales charges or contingent ACTUAL deferred sales charges. Therefore, the second section of the Class A $1,000.00 $ 827.60 1.36% $ 6.20 accompanying tables is useful in comparing ongoing costs only, Class B 1,000.00 825.80 2.11% 9.60 and will not help you determine the relative total costs of Class C 1,000.00 824.80 2.11% 9.60 owning different funds. In addition, if those transactional costs were included, your costs would have been higher. The HYPOTHETICAL (5% RETURN BEFORE EXPENSES) calculations assume no shares were bought or sold during the Class A 1,000.00 1,018.07 1.36% 6.87 period. Your actual costs may have been higher or lower, Class B 1,000.00 1,014.28 2.11% 10.65 depending on the amount of your investment and the timing of any Class C 1,000.00 1,014.28 2.11% 10.65 purchases or redemptions. --------------------------------------------------------------- MID-CAP GROWTH FUND --------------------------------------------------------------- ACTUAL Class A $1,000.00 $ 695.30 1.45% $ 6.13 Class B 1,000.00 692.00 2.20% 9.28 Class C 1,000.00 692.60 2.20% 9.28 Class I 1,000.00 696.20 1.20% 5.07 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,017.61 1.45% 7.29 Class B 1,000.00 1,013.82 2.20% 11.05 Class C 1,000.00 1,013.82 2.20% 11.05 Class I 1,000.00 1,018.87 1.20% 6.06 ---------------------------------------------------------------
4 VIRTUS EQUITY TRUST DISCLOSURE OF FUND EXPENSES (UNAUDITED) (CONTINUED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 EXPENSE TABLE EXPENSE TABLE --------------------------------------------------------------- --------------------------------------------------------------- Beginning Ending Annualized Expenses Paid Beginning Ending Annualized Expenses Paid Account Value Account Value Expense During Account Value Account Value Expense During October 1, 2008 March 31, 2009 Ratio Period* October 1, 2008 March 31, 2009 Ratio Period* --------------------------------------------------------------- --------------------------------------------------------------- QUALITY SMALL-CAP FUND VALUE OPPORTUNITIES FUND --------------------------------------------------------------- --------------------------------------------------------------- ACTUAL ACTUAL Class A $1,000.00 $ 663.30 1.50% $ 6.22 Class A $1,000.00 $ 703.20 1.35% $ 5.73 Class C 1,000.00 659.90 2.25% 9.31 Class C 1,000.00 700.40 2.10% 8.90 Class I 1,000.00 664.20 1.25% 5.19 Class I 1,000.00 704.30 1.10% 4.67 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,017.36 1.50% 7.57 Class A 1,000.00 1,018.12 1.35% 6.82 Class C 1,000.00 1,013.57 2.25% 11.36 Class C 1,000.00 1,014.33 2.10% 10.60 Class I 1,000.00 1,018.62 1.25% 6.31 Class I 1,000.00 1,019.38 1.10% 5.55 --------------------------------------------------------------- ------------------------------------------------------------ SMALL-CAP CORE FUND --------------------------------------------------------------- * Expenses are equal to the relevant Fund's annualized expense ACTUAL ratio, which includes waived fees and reimbursed expenses, Class A $1,000.00 $ 712.30 1.70% $ 7.26 if applicable, multiplied by the average account value over Class B 1,000.00 709.50 2.44% 10.40 the period, multiplied by the number of days (182) expenses Class C 1,000.00 709.20 2.45% 10.44 were accrued in the most recent fiscal half-year, then Class I 1,000.00 712.90 1.44% 6.15 divided by 365 days to reflect the one-half year period. Exceptions noted under ++. HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,016.35 1.70% 8.58 The Funds may invest in other funds, and the annualized Class B 1,000.00 1,012.61 2.44% 12.32 expense ratios noted above do not reflect fees and expenses Class C 1,000.00 1,012.56 2.45% 12.37 associated with the underlying funds. If such expenses and Class I 1,000.00 1,017.66 1.44% 7.27 fees had been included, the expenses would have been higher. --------------------------------------------------------------- SMALL-CAP GROWTH FUND ++ If extraordinary expenses were excluded for the Growth & --------------------------------------------------------------- Income Fund, actual expenses paid and the hypothetical ACTUAL expenses would be as follows: Class A $1,000.00 $ 635.40 1.90% $ 7.75 Class B 1,000.00 633.10 2.66% 10.83 ACTUAL Class C 1,000.00 632.70 2.65% 10.79 EXPENSES HYPOTHETICAL PAID EXPENSES HYPOTHETICAL (5% RETURN BEFORE EXPENSES) -------- ------------ Class A 1,000.00 1,015.34 1.90% 9.59 Class A $5.52 $ 6.61 Class B 1,000.00 1,011.50 2.66% 13.43 Class B 8.76 10.50 Class C 1,000.00 1,011.55 2.65% 13.38 Class C 8.71 10.45 --------------------------------------------------------------- Class I 4.51 5.40 SMALL-CAP SUSTAINABLE GROWTH FUND --------------------------------------------------------------- The Hypothetical ending account values would be $1,018.32 for ACTUAL Class A, $1,014.43 for Class B, $1,014.48 for Class C, and Class A $1,000.00 $ 676.90 1.52% $ 6.35 $1,019.53 for Class I. There is no impact on the ending account Class C 1,000.00 672.60 2.29% 9.55 value for actual expenses. Class I 1,000.00 671.00 1.29% 5.37 You can find more information about the Funds' expenses in the HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Financial Statements section that follows. For additional Class A 1,000.00 1,017.26 1.52% 7.67 information on operating expenses and other shareholder costs, Class C 1,000.00 1,013.37 2.29% 11.56 refer to the prospectus. Class I 1,000.00 1,018.42 1.29% 6.51 --------------------------------------------------------------- STRATEGIC GROWTH FUND --------------------------------------------------------------- ACTUAL Class A $1,000.00 $ 726.10 1.72% $ 7.40 Class B 1,000.00 723.20 2.46% 10.57 Class C 1,000.00 722.10 2.46% 10.56 Class I 1,000.00 727.50 1.47% 6.33 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,016.25 1.72% 8.68 Class B 1,000.00 1,012.51 2.46% 12.42 Class C 1,000.00 1,012.51 2.46% 12.42 Class I 1,000.00 1,017.51 1.47% 7.42 ---------------------------------------------------------------
5 TICKER SYMBOLS: A Share: PASGX B Share: PGOBX ALL-CAP GROWTH FUND C Share: PGOCX - ALL-CAP GROWTH FUND (THE "FUND") is WHAT FACTORS AFFECTED THE FUND'S BECAUSE THE FUND IS HEAVILY WEIGHTED IN A diversified and has an investment PERFORMANCE DURING ITS FISCAL YEAR? SINGLE SECTOR, IT WILL BE IMPACTED BY THAT objective to seek long-term growth of SECTOR'S PERFORMANCE MORE THAN A FUND WITH capital. - Growth stocks outperformed value stocks, BROADER SECTOR DIVERSIFICATION. and large cap stocks outperformed small For the fiscal year ended March 31, cap stocks over the fiscal year ended (ALSO SEE NOTE 15 IN THE NOTES TO 2009, the Fund's Class A shares returned March 31, 2009. FINANCIAL STATEMENTS). -37.67%, Class B shares returned -38.04% and Class C shares returned -38.14%. For - Underperformance of the Fund relative to the same period, the S&P 500(R) Index, a its primary benchmark was largely broad-based equity index, returned influenced by the negative impact of -38.09%; and the Russell 3000(R) Growth security selection. Specifically, stock Index, the Fund's style-specific selections in the Industrials, benchmark, returned -34.42%. Technology, and Consumer Staples sectors were detractors to performance, somewhat ALL PERFORMANCE FIGURES ASSUME offset by positive stock selections in REINVESTMENT OF DISTRIBUTIONS AND the Consumer Discretionary and Health EXCLUDE THE EFFECT OF SALES CHARGES. Care sectors. PERFORMANCE DATA QUOTED REPRESENTS PAST RESULTS. PAST PERFORMANCE IS NO - Sector allocation decisions were GUARANTEE OF FUTURE RESULTS AND CURRENT positive contributors to performance. PERFORMANCE MAY BE HIGHER OR LOWER THAN Underweight positioning in the THE PERFORMANCE SHOWN. INVESTMENT RETURN underperforming Energy sector and AND PRINCIPAL VALUE WILL FLUCTUATE SO overweight positioning in the YOUR SHARES WHEN REDEEMED, MAY BE WORTH outperforming Technology sector were the MORE OR LESS THAN THEIR ORIGINAL COST. biggest contributors to positive sector PLEASE VISIT VIRTUS.COM FOR PERFORMANCE allocation. Underweighting the DATA CURRENT TO THE MOST RECENT outperforming Consumer Staples sector MONTH-END. was the biggest detractor from positive sector allocation. HOW DID THE MARKET PERFORM DURING THE FUND'S FISCAL YEAR? THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT ONLY THROUGH THE - Broadly speaking, the equity markets END OF THE PERIOD OF THE REPORT AS STATED were down during the Fund's fiscal year ON THE COVER. ANY SUCH OPINIONS ARE ended March 31, 2009. A slowing global SUBJECT TO CHANGE AT ANY TIME BASED UPON economy plus continued credit concerns MARKET OR CONDITIONS AND SHOULD NOT BE pressured equity returns during the time RELIED ON AS INVESTMENT ADVICE. period. INVESTING IN THE SECURITIES OF SMALL AND - Volatility reached a multi-year high as MID-SIZED COMPANIES INVOLVES GREATER RISKS the fiscal year progressed and investors AND PRICE VOLATILITY THAN INVESTING IN digested a host of variables affecting LARGER, MORE ESTABLISHED COMPANIES. forecasted profits. Continued housing price declines, rising unemployment, and lower earnings forecasts were countered by unprecedented policy and monetary responses to the slowing economy. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
6 ALL-CAP GROWTH FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years 10 years CLASS A SHARES AT NAV(2) -37.67% -6.68% -6.27% CLASS A SHARES AT POP(3,4) -41.25 -7.77 -6.82 CLASS B SHARES AT NAV(2) -38.04 -7.35 -6.95 CLASS B SHARES WITH CDSC(4) -40.41 -7.35 -6.95 CLASS C SHARES AT NAV(2) -38.14 -7.38 -6.97 CLASS C SHARES WITH CDSC(4) -38.14 -7.38 -6.97 S&P 500(R) INDEX -38.09 -4.77 -3.00 RUSSELL 3000(R) GROWTH INDEX -34.42 -4.44 -4.99 FUND EXPENSE RATIOS(5): A SHARES: 1.62%; B SHARES: 2.37%; C SHARES: 2.37%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* ------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class Information Technology 35% A, Class B and Class C shares including any applicable sales charges or fees. Health Care 14 Performance assumes reinvestment of dividends and capital gain distributions. Industrials 11 Consumer Discretionary 10 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Consumer Staples 9 Energy 7 Russell Materials 4 3000(R) Other (includes short-term Share Share Share S&P 500(R) Growth investments) 10 Class A Class B Class C Index Index -------- -------- -------- -------- -------- * % of total investments as of March 31, 3/31/99 $ 9,425 $10,000 $10,000 $10,000 $10,000 2009. 3/31/00 13,434 14,152 14,152 11,824 13,577 3/31/01 6,467 6,760 6,760 9,240 7,804 3/30/02 6,080 6,311 6,311 9,263 7,690 3/28/03 4,665 4,807 4,807 6,970 5,608 3/31/04 6,970 7,127 7,127 9,418 7,522 3/31/05 6,882 6,980 6,985 10,046 7,608 3/31/06 8,217 8,280 8,280 11,225 8,704 3/31/07 8,057 8,054 8,054 12,553 9,273 3/30/08 7,916 7,853 7,854 11,916 9,138 3/31/09 4,934 4,866 4,858 7,377 5,993 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
7 TICKER SYMBOLS: A Share: PDIAX B Share: PBGIX C Share: PGICX GROWTH & INCOME FUND I Share: PXIIX - GROWTH & INCOME FUND (THE "FUND") is WHAT FACTORS AFFECTED THE FUND'S diversified and has an investment PERFORMANCE DURING ITS FISCAL YEAR? objective to seek capital appreciation and current income. - Value stocks weighed most heavily on the Fund's performance over the past year, For the fiscal year ended March 31, as large-cap value stocks underperformed 2009, the Fund's Class A shares returned large-cap growth stocks by a significant -37.65%, Class B shares returned margin. -38.06%, Class C shares returned -38.15% and Class I shares returned -37.51%. For - Sector selection within the Fund had a the same period, the S&P 500(R) Index, a negative impact on the Fund's return. In broad-based equity index, returned particular, Financials and Consumer -38.09%. Staples detracted the most. Information Technology and Telecommunications ALL PERFORMANCE FIGURES ASSUME Services had the most positive impact. REINVESTMENT OF DISTRIBUTIONS AND EXCLUDE THE EFFECT OF SALES CHARGES. - Overall, security selection was a drag PERFORMANCE DATA QUOTED REPRESENTS PAST on performance relative to the benchmark RESULTS. PAST PERFORMANCE IS NO S&P 500(R) Index. Health Care and GUARANTEE OF FUTURE RESULTS AND CURRENT Consumer Discretionary issues proved PERFORMANCE MAY BE HIGHER OR LOWER THAN most problematic. Security selection THE PERFORMANCE SHOWN. INVESTMENT RETURN within the worst performing Financial AND PRINCIPAL VALUE WILL FLUCTUATE SO sector was positive as was selection in YOUR SHARES WHEN REDEEMED, MAY BE WORTH the Energy Sector. MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE THE PRECEDING INFORMATION IS THE OPINION DATA CURRENT TO THE MOST RECENT OF PORTFOLIO MANAGEMENT ONLY THROUGH THE MONTH-END. END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. ANY SUCH OPINIONS ARE HOW DID THE MARKET PERFORM DURING THE SUBJECT TO CHANGE AT ANY TIME BASED UPON FUND'S FISCAL YEAR? MARKET CONDITIONS AND SHOULD NOT BE RELIED ON AS INVESTMENT ADVICE. - Over the Fund's past fiscal year, generally speaking, all major U.S. INVESTING IN THE SECURITIES OF SMALL AND equity benchmarks suffered losses. The MID-SIZED COMPANIES INVOLVES GREATER RISKS S&P 500(R) Index, one of the most widely AND PRICE VOLATILITY THAN INVESTING IN used and well known broad U.S. equity LARGER, MORE ESTABLISHED COMPANIES. benchmarks was down -38.09% for the fiscal year. The Russell 2000(R) Index, an index measuring U.S. small capitalization stocks was down 37.50%. - All sectors within the S&P 500(R) Index recorded negative returns for the year, as the global recession and general economic slowdown spared none. - Increasing unemployment, tight credit markets, and general weakness in the housing market were among the themes that carried throughout the year, as volatility reached a multi-year high. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
8 GROWTH & INCOME FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -37.65% -4.64% -2.49% -- -- CLASS A SHARES AT POP(3,4) -41.23 -5.77 -3.07 -- -- CLASS B SHARES AT NAV(2) -38.06 -5.34 -3.21 -- -- CLASS B SHARES WITH CDSC(4) -40.54 -5.34 -3.21 -- -- CLASS C SHARES AT NAV(2) -38.15 -5.37 -3.23 -- -- CLASS C SHARES WITH CDSC -38.15 -5.37 -3.23 -- -- CLASS I SHARES -37.51 -- -- -34.11% 11/13/07 S&P 500(R) INDEX -38.09 -4.77 -3.00 -34.51 11/13/07 FUND EXPENSE RATIOS(5): A SHARES: GROSS 1.46%, NET 1.37%; B SHARES: GROSS 2.21%, NET 2.11%; C SHARES: GROSS 2.21%, NET 2.12%; I SHARES: GROSS 1.21%, NET 1.19%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A, Class B and Class C shares including any applicable sales charges or fees. The Information Technology 16% performance of the other share class will be greater or less than that shown based on Energy 14 differences in inception date, fees and sales charges. Performance assumes reinvestment Health Care 13 of dividends and capital gain distributions. Industrials 12 Consumer Staples 11 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Financials 11 Consumer Discretionary 7 Share Share Share S&P 500(R) Other (includes short-term Class A Class B Class C Index investments) 16 -------- -------- -------- -------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 * % of total investments as of March 31, 3/31/00 11,250 11,853 11,844 11,824 2009. 3/31/01 9,237 9,662 9,655 9,240 3/30/02 9,286 9,632 9,625 9,263 3/28/03 6,900 7,103 7,105 6,970 3/31/04 9,288 9,493 9,493 9,418 3/31/05 9,960 10,105 10,098 10,046 3/31/06 10,972 11,054 11,045 11,225 3/31/07 12,415 12,414 12,405 12,553 3/30/08 11,744 11,650 11,649 11,916 3/31/09 7,323 7,215 7,205 7,377 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
9 TICKER SYMBOLS: A Share: TLCGX C Share: TGOCX GROWTH OPPORTUNITIES FUND I Share: TIGOX - GROWTH OPPORTUNITIES FUND (THE "FUND") - Additionally, a surprising improvement - The Fund held a much lower weight in is non-diversified and has an investment in existing home sales from January to Energy than the benchmark during the objective to seek capital appreciation. February and clarity by the Treasury period. The lower weight, coupled with surrounding its plan to buy up to $2 better stock selection, was the biggest For the fiscal year ended March 31, trillion in toxic real-estate assets relative contributor during the period. 2009, the Fund's Class A shares returned from banks helped restore investor The Fund's positions in the oil & gas -41.73%, Class C shares returned -42.16% confidence as all major indices posted production and contract drilling and Class I shares returned -44.60% for positive returns for the month of March. industries contributed, as most of these the period June 6, 2008, (inception) to positions ended the period with positive March 31, 2009. For the fiscal year, the WHAT FACTORS AFFECTED THE FUND'S absolute performance. S&P 500(R) Index, a broad-based equity PERFORMANCE DURING ITS FISCAL YEAR? index, returned -38.09%; and the Russell - While the Fund's weight in the 1000(R) Growth Index, which is the - Risk aversion remained foremost in materials/ processing sector was in line Fund's style-specific equity index investors' minds during much of the with the benchmark, its lower weight in appropriate for comparison, returned Fund's fiscal year, best exemplified by the precious metals industry and absence -34.28%. the advance of U.S. Treasury prices in the steel industry for the entire (which move inversely to their yield). period were particularly helpful. Also, ALL PERFORMANCE FIGURES ASSUME The yield on 10-Year U.S. Treasury Notes the Fund's stock selection in home REINVESTMENT OF DISTRIBUTIONS AND declined from 3.9% to as low as 2.2% at improvement/ construction materials and EXCLUDE THE EFFECT OF SALES CHARGES. one point, and 3-month T-Bill rates were in agricultural chemicals contributed PERFORMANCE DATA QUOTED REPRESENTS PAST priced to yield less than 0% at times during the period. RESULTS. PAST PERFORMANCE IS NO during the end of 2008. GUARANTEE OF FUTURE RESULTS AND CURRENT THE PRECEDING INFORMATION IS THE OPINION PERFORMANCE MAY BE HIGHER OR LOWER THAN - With investors remaining extremely risk OF PORTFOLIO MANAGEMENT ONLY THROUGH THE THE PERFORMANCE SHOWN. INVESTMENT RETURN averse, companies with premium earnings END OF THE PERIOD OF THE REPORT AS STATED AND PRINCIPAL VALUE WILL FLUCTUATE SO growth rates, such as those that this ON THE COVER. ANY SUCH OPINIONS ARE YOUR SHARES WHEN REDEEMED, MAY BE WORTH strategy finds attractive, were not SUBJECT TO CHANGE AT ANY TIME BASED UPON MORE OR LESS THAN THEIR ORIGINAL COST. rewarded. Consequently, it was a MARKET CONDITIONS AND SHOULD NOT BE RELIED PLEASE VISIT VIRTUS.COM FOR PERFORMANCE difficult twelve months for this ON AS INVESTMENT ADVICE. DATA CURRENT TO THE MOST RECENT strategy on both an absolute and a MONTH-END. relative basis. BECAUSE THE FUND IS HEAVILY WEIGHTED IN A SINGLE SECTOR, IT WILL BE IMPACTED BY THAT HOW DID THE MARKET PERFORM DURING THE - The lag versus the benchmark during this SECTOR'S PERFORMANCE MORE THAN A FUND WITH FUND'S FISCAL YEAR? timeframe was largely attributed to A BROADER SECTOR DIVERSIFICATION. underperformance in the Consumer - As the closing bell rang on the floor of Discretionary, Healthcare, and INVESTING IN THE SECURITIES OF SMALL AND the New York Stock Exchange on December Technology Sectors. The underperformance MID-SIZED COMPANIES INVOLVES GREATER RISKS 31st of 2008, investors cheered as the in these sectors was slightly offset by AND PRICE VOLATILITY THAN INVESTING IN year officially drew to a close, and results in the portfolio's energy and LARGER, MORE ESTABLISHED COMPANIES. rightfully so, as the year went down as materials/processing sectors. the second-worst calendar year ever for the S&P 500(R) Index (its return of - In the Consumer Discretionary sector, -37.0% is second only to the 1931 loss slower growth companies that the Fund of more than -43.3%). did not own generally held the high ground, while the market tended to - The S&P 500(R) Index was not alone in punish the higher growth companies that the decline, as the Dow Jones Industrial the Fund's subadviser favors. Well-known AverageSM fell 33.8% and the NASDAQ companies that the Fund did not own such Composite Index(R) declined a record as Wal-Mart and McDonald's held up 40.5%. Overall, for the twelve months reasonably well. On the other hand, the ending March 31st, the S&P 500 was down Fund's positions in higher growth names, 38.1% and the strategy's primary especially in the apparel/retail space, benchmark, the Russell 1000(R) Growth traded substantially lower. Index, was down 34.3%. - Within the Health Care sector, many - As investors nervously entered 2009, segments were more economically they were unfortunately greeted by much sensitive than initially expected. of the same, including the worst January Hospital utilization rates decreased performance on record, with the S&P 500 dramatically toward the end of 2008, Index down 8.43% on fading hopes that which resulted in massive losses and the Obama administration would present a significant pressure for hospitals. As a comprehensive solution to mend the result, hospital capital expenditures financial crisis. But the decline didn't have been cut dramatically, and all stop there, as the Index fell an companies that sell devices or equipment additional 10.65% in February breaking to hospitals have suffered. through the lows of last October. - Within Technology, the Fund's position - The Index continued to slide into March, in software and Information Technology and bottomed a full 57% lower than the Service Providers detracted the most all-time high before announcements by during the period, which more than Citigroup, JP Morgan Chase and Bank of offset positive contributions in the America that all three firms were telecommunications equipment industry. profitable in January and February sparked a rally. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
10 GROWTH OPPORTUNITIES FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -41.73% -5.56% -4.91% -- -- CLASS A SHARES AT POP(3,4) -45.08 -- -6.67 -5.47 -- CLASS C SHARES AT NAV(2) -42.16 -- -- -13.64% 6/09/06 CLASS C SHARES WITH CDSC(4) -42.16 -- -- -13.64 6/09/06 CLASS I SHARES -- -- -- -44.60 6/06/08 S&P 500(R) INDEX -38.09 -4.77 -3.00 NOTE 5 NOTE 5 RUSSELL 1000(R) GROWTH INDEX -34.28 -4.38 -5.26 NOTE 6 NOTE 6 FUND EXPENSE RATIOS(7): A SHARES: GROSS 1.47%, NET 1.25%; C SHARES: GROSS 2.21%, NET 2.03%; I SHARES: GROSS 1.22%, NET 1.00%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) "CDSC" (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE S&P 500(R) INDEX RETURNS SINCE INCEPTION OF CLASS C SHARES (6/9/06) ARE -12.96% AND -40.06% FOR CLASS I SHARES (6/6/08). (6) THE RUSSELL 1000(R) GROWTH INDEX RETURNS SINCE INCEPTION OF CLASS C SHARES (6/9/06) ARE -10.58% AND -38.55% FOR CLASS I SHARES (6/6/08). (7) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF THE VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A shares including any applicable sales charges or fees. The performance of the other Information Technology 40% share class will be greater or less than that shown based on differences in inception Health Care 15 date, fees and sales charges. Performance assumes reinvestment of dividends and capital Consumer Discretionary 13 gain distributions. Financials 7 Energy 6 Materials 6 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Industrials 5 Other 8 Share S&P 500(R) Russell 1000(R) Class A Index Growth Index * % of total investments as of March 31, -------- -------- ------------- 2009. 3/31/99 $ 9,425 $10,000 $10,000 3/31/00 15,100 11,824 13,412 3/31/01 7,550 9,240 7,683 3/30/02 6,912 9,263 7,529 3/28/03 5,010 6,970 5,514 3/31/04 7,586 9,418 7,289 3/31/05 7,572 10,046 7,373 3/31/06 9,367 11,225 8,343 3/31/07 9,303 12,553 8,931 3/30/08 9,778 11,916 8,864 3/31/09 5,698 7,377 5,825 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
11 TICKER SYMBOLS: A Share: NAINX B Share: NBINX INCOME & GROWTH FUND C Share: POICX - INCOME & GROWTH FUND (THE "FUND") is issues proved most problematic. Security effect. Numerous government programs diversified and has a primary investment selection within the worst performing announced during the quarter such as objective of investing in a diversified Financial Sector was positive as was PPIP, TALF, expanded quantitative easing group of securities that are selected selection in the Energy Sector. via the Federal Reserve Bank's purchase for current yield consistent with the of $1 trillion long dated Treasuries, preservation of capital. The Fund has a HOW DID THE FIXED INCOME MARKET PERFORM agency debt, and agency mortgage-backed secondary investment objective to DURING THE FUND'S FISCAL YEAR? securities, coupled with the FASB achieve capital appreciation when it's decision to alter rules regarding consistent with the Fund's primary - The broad U.S. fixed income market, as mark-to-market accounting have helped objective. represented by the Barclays Capital U.S. improve sentiment in all fixed income Aggregate Bond Index returned 3.13% for markets as, well as equities. The flight For the fiscal year ended March 31, the fiscal year ended March 31, 2009. to quality over the past 18 months has 2009, the Fund's Class A shares returned reversed, with U.S. Treasuries being -23.17%, Class B shares returned - Since March 31, 2008 the Federal Reserve outperformed by nearly all spread -23.59%, and Class C shares returned (the "Fed") has cut the federal funds sectors during the 1st quarter. -23.72%. For the same period, the rate 2.00% from 2.25% to a target range Barclays Capital U.S. Aggregate Bond of 0-0.25%, citing concerns over WHAT FACTORS AFFECTED THE FUND'S FIXED Index, a broad-based fixed income index, tightening credit conditions and a INCOME PERFORMANCE DURING ITS FISCAL YEAR? returned 3.13%, the S&P 500(R) Index, a weakening economy. In the meetings, broad-based equity index, returned towards the end of 2nd quarter and early - The decision to maintain an underweight -38.09%; and the Income & Growth Fund 3rd quarter 2008, as commodities were to U.S. Treasuries in favor of spread Composite Index, the Fund's hitting all time highs and inflation as sectors was the largest detractor to style-specific benchmark, returned measured by CPI was heightened, the Fed performance for the fiscal year. -19.32%. left rates unchanged citing concerns of Treasuries outperformed as concerns over downside risks to growth and upside sub-prime and the resulting credit ALL PERFORMANCE FIGURES ASSUME inflation risks. In October the Fed crunch continued the flight to quality, REINVESTMENT OF DISTRIBUTIONS AND resumed its rate cut campaign, cutting causing spreads in many sectors to widen EXCLUDE THE EFFECT OF SALES CHARGES. the federal funds rate from 2.00% to a to or near historic levels. This PERFORMANCE DATA QUOTED REPRESENTS PAST target range of 0-0.25% by the end of environment typically does not favor the RESULTS. PAST PERFORMANCE IS NO the year. The Fed indicated that the Fund's subadviser's style of investing, GUARANTEE OF FUTURE RESULTS AND CURRENT additional rate cuts were necessary in however, the Fund has maintained PERFORMANCE MAY BE HIGHER OR LOWER THAN response to the intensification of the diversification in all of its credit THE PERFORMANCE SHOWN. INVESTMENT RETURN financial crisis that increased the intensive sectors and has used the AND PRINCIPAL VALUE WILL FLUCTUATE SO downside risk to growth and that spread widening as an opportunity to YOUR SHARES WHEN REDEEMED, MAY BE WORTH inflationary pressures had started to invest in high quality issues that have MORE OR LESS THAN THEIR ORIGINAL COST. moderate. Since the beginning of the widened in sympathy with the market. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE fiscal year the yield curve has DATA CURRENT TO THE MOST RECENT steepened, with rates declining across - Among the Fund's investment in spread MONTH-END. the curve but more pronounced at the sectors, the overweight to commercial front end of the curve. mortgage-backed securities, corporate HOW DID THE EQUITY MARKET PERFORM DURING high yield, and residential THE FUND'S FISCAL YEAR? - The credit markets during the Fund's mortgage-backed securities detracted the fiscal year ended March 31, 2009 can be most from performance. - Over the Fund's past fiscal year, broken down into two distinct generally speaking, all major U.S. sub-sections: the last three quarters of - The largest positive contributors to equity benchmarks suffered losses. The 2008 and the first quarter of 2009. The performance were the Fund's exposure to S&P 500(R) Index, one of the most widely credit markets during the last three agency mortgage-backed securities and used and well known broad U.S. equity quarters of 2008 were extraordinarily municipal bonds, though municipal bonds benchmarks was down 38.09% for the volatile, with the 4th quarter being the underperformed U.S. Treasuries. fiscal year. The Russell 2000(R) Index, most volatile. This was primarily due to an index measuring U.S. small fear surrounding the subprime mortgage THE PRECEDING INFORMATION IS THE OPINION capitalization stocks, was down 37.50%. market and its resulting contagion. OF PORTFOLIO MANAGEMENT ONLY THROUGH THE During the year and even more in the 4th END OF THE PERIOD OF THE REPORT AS STATED - All sectors within the S&P 500(R) Index quarter, the economy showed significant ON THE COVER. ANY SUCH OPINIONS ARE recorded negative returns for the year signs of weakening with unemployment on SUBJECT TO CHANGE AT ANY TIME BASED UPON as the global recession and general the rise, a deteriorating housing MARKET CONDITIONS AND SHOULD NOT BE RELIED economic slowdown spared none. market, and unprecedented stress to the ON AS INVESTMENT ADVICE. financial system, resulting in a severe - Increasing unemployment, tight credit lack of liquidity and uncertainty in the INVESTING INTERNATIONALLY, ESPECIALLY IN markets, and general weakness in the market. Despite the numerous efforts of EMERGING MARKETS, INVOLVES ADDITIONAL housing market were among the themes the Federal Reserve to inject liquidity RISKS SUCH AS CURRENCY, POLITICAL, that carried throughout the year, as into the system these fears caused a ACCOUNTING ECONOMIC AND MARKET RISK. volatility reached a multi-year high. very significant flight to quality which resulted in dramatic spread widening in THE FUND MAY INVEST IN HIGH YIELD BONDS, WHAT FACTORS AFFECTED THE FUND'S all sectors of the bond market. So WHICH MAY BE SUBJECT TO GREATER CREDIT AND PERFORMANCE DURING ITS FISCAL YEAR? significant was this flight to quality, MARKET RISKS. that it caused Treasuries to outperform - Value stocks weighed most heavily on the all spread sectors for the full AS INTEREST RATES RISE, EXISTING BOND Fund's equity performance over the past reporting period. PRICES FALL AND CAN CAUSE THE VALUE OF AN year, as large-cap value stocks INVESTMENT IN A FUND TO DECLINE. CHANGES underperformed large-cap growth stocks - During the first quarter of 2009 the IN INTEREST RATES WILL AFFECT THE VALUE OF by a significant margin. economy continued to show signs of LONGER-TERM FIXED INCOME SECURITIES MORE weakening with rising unemployment, a THAN SHORTER-TERM SECURITIES. - Sector selection within the Fund had a deteriorating housing market, and negative impact on the Fund's return. In declining retail sales and consumer INVESTING IN THE SECURITIES OF SMALL AND particular, financials and consumer confidence. While still at recessionary MID-SIZED COMPANIES INVOLVES GREATER RISKS staples detracted the most. Information levels, the pace of the economic decline AND PRICE VOLATILITY THAN INVESTING IN technology and telecommunications has shown signs of slowing. The various LARGER, MORE ESTABLISHED COMPANIES. services added the most. efforts of the Federal Reserve and U.S. Treasury to inject liquidity into the (ALSO SEE NOTE 15 IN THE NOTES TO - Overall, security selection was a slight system and provide clarity are starting FINANCIAL STATEMENTS). drag on performance relative to the to take benchmark S&P 500(R) Index. Health Care and Consumer Discretionary For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
12 INCOME & GROWTH FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -23.17% -1.86% 0.53% -- -- CLASS A SHARES AT POP(3) -27.59 -3.02 -0.06 -- -- CLASS B SHARES AT NAV(2) -23.59 -2.58 -0.22 -- -- CLASS B SHARES WITH CDSC(4) -26.54 -2.58 -0.22 -- -- CLASS C SHARES AT NAV(2) -23.72 -2.61 -- -0.33% 8/26/99 CLASS C SHARES WITH CDSC(4) -23.72 -2.61 -- -0.33 8/26/99 S&P 500(R) INDEX -38.09 -4.77 -3.00 -3.74 8/26/99 BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX 3.13 4.13 5.70 5.97 8/26/99 INCOME & GROWTH FUND COMPOSITE INDEX -19.32 -0.14 1.62 1.37 8/26/99 FUND EXPENSE RATIOS(5): A SHARES: 1.28%; B SHARES: 2.03%; C SHARES: 2.03%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 4.75% SALES CHARGE. (4) "CDSC" (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH IN THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 ASSET ALLOCATION as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A Common Stocks 46% and Class B shares including any applicable sales charges or fees. The performance of Information Technology 8% the other share class will be greater or less than that shown based on differences in Energy 7 inception date, fees and sales charges. Performance assumes reinvestment of dividends Health Care 6 and capital gain distributions. All others 25 Mortgage-Backed Securities 22 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Corporate Bonds 18 Other (includes short-term Barclays Income & investments) 14 Capital U.S. Growth Share Share S&P 500(R) Aggregate Composite * % of total investments as of March 31, Class A Class B Index Bond Index Index 2009. -------- -------- -------- ------------ ---------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 $10,000 3/31/00 10,133 10,664 11,824 10,187 11,011 3/31/01 9,601 10,023 9,240 11,463 10,370 3/30/02 9,933 10,285 9,263 12,076 10,704 3/28/03 9,033 9,288 6,970 13,488 9,885 3/31/04 10,917 11,153 9,418 14,217 11,822 3/31/05 11,286 11,440 10,046 14,380 12,292 3/31/06 11,953 12,019 11,225 14,705 13,150 3/31/07 13,071 13,052 12,553 15,674 14,364 3/30/08 12,935 12,807 11,916 16,876 14,552 3/31/09 9,938 9,786 7,377 17,403 11,741 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
13 TICKER SYMBOLS: A Share: PHSKX B Share: PSKBX C Share: PSKCX MID-CAP GROWTH FUND I Share: PICMX - MID-CAP GROWTH FUND (THE "FUND") is - In the near term, quarterly earnings diversified and has an investment reports will be an important signal for objective to seek capital appreciation. the markets, as companies reveal their performance and outlook for the For the fiscal year ended March 31, remainder of the year. In addition, the 2009, the Fund's Class A shares returned market will continue to assess the -40.26%, Class B shares returned government and Federal Reserve's plans -40.79%, Class C shares returned to combat the financial crisis facing -40.70%, and Class I shares returned the nation and key economic indicators -40.07%. For the same period the S&P will continue to be closely scrutinized. 500(R) Index, a broad-based equity index, returned -38.09% and the Russell WHAT FACTORS AFFECTED THE FUND'S MidCap(R) Growth Index, the Fund's PERFORMANCE DURING ITS FISCAL YEAR? style-specific benchmark, returned -39.58%. - Stock selection was slightly negative for the period. Stock selection within ALL PERFORMANCE FIGURES ASSUME the Financial sector was quite strong, REINVESTMENT OF DISTRIBUTIONS AND as the Fund generally avoided troubled EXCLUDE THE EFFECT OF SALES CHARGES. banks. Selection was also solid within PERFORMANCE DATA QUOTED REPRESENTS PAST Utilities and Consumer Staples. Within RESULTS. PAST PERFORMANCE IS NO the Healthcare, Materials, and Energy GUARANTEE OF FUTURE RESULTS AND CURRENT sectors stock selection detracted from PERFORMANCE MAY BE HIGHER OR LOWER THAN performance. THE PERFORMANCE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO - Overall sector allocation was slightly YOUR SHARES WHEN REDEEMED, MAY BE WORTH positive, benefiting by the portfolio's MORE OR LESS THAN THEIR ORIGINAL COST. overweight position in PLEASE VISIT VIRTUS.COM FOR PERFORMANCE Telecommunications and underweight DATA CURRENT TO THE MOST RECENT position in Financials. MONTH-END. THE PRECEDING INFORMATION IS THE OPINION HOW DID THE MARKET PERFORM DURING THE OF PORTFOLIO MANAGEMENT ONLY THROUGH THE FUND'S FISCAL YEAR? END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. ANY SUCH OPINIONS ARE - Equity markets performed poorly during SUBJECT TO CHANGE AT ANY TIME BASED UPON this fiscal year mirroring economic MARKET CONDITIONS AND SHOULD NOT BE RELIED conditions and expectations. Sector ON AS INVESTMENT ADVICE. rotation radically impacted returns within energy and materials. INVESTING IN THE SECURITIES OF SMALL AND MID-SIZED COMPANIES INVOLVES GREATER RISKS - The Russell Midcap Growth Index fared AND PRICE VOLATILITY THAN INVESTING IN moderately better than its Russell LARGER, MORE ESTABLISHED COMPANIES. Midcap Value Index due in large part to its relative overweight of Technology and underweight of the Financial sector. - New fears about the survival of the nation's largest banks produced an extremely challenging month of February. The markets did finally begin to rally with unexpected better news out of some banks, including Citigroup. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
14 MID-CAP GROWTH FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -40.26% -9.39% -6.16% -- -- CLASS A SHARES AT POP(3,4) -43.69 -10.46 -6.71 -- -- CLASS B SHARES AT NAV(2) -40.79 -10.09 -6.87 -- -- CLASS B SHARES WITH CDSC(4) -43.16 -10.09 -6.87 -- -- CLASS C SHARES AT NAV(2) -40.70 -10.08 -- -10.56% 1/2/01 CLASS C SHARES WITH CDSC(4) -40.70 -10.08 -- -10.56 1/2/01 CLASS I SHARES AT NAV(2) -40.07 -- -- -34.93 9/13/07 S&P 500(R) INDEX -38.09 -4.77 -3.00 NOTE 5 NOTE 5 RUSSELL MIDCAP(R) GROWTH INDEX -39.58 -3.91 -0.86 NOTE 6 NOTE 6 FUND EXPENSE RATIOS(7): A SHARES: GROSS 1.53%, NET 1.45%; B SHARES: GROSS 2.28%, NET 2.20%; C SHARES: GROSS 2.28%, NET 2.20%; I SHARES: GROSS 1.28%, NET 1.20%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE S&P 500(R) INDEX RETURNS SINCE THE INCEPTION OF CLASS C SHARES (1/2/01) ARE -3.84% AND -31.41% FOR CLASS I SHARES (9/13/07). (6) RUSSELL MIDCAP(R) GROWTH INDEX RETURNS SINCE THE INCEPTION OF CLASS C SHARES (1/2/01) ARE -3.13% AND -32.13% FOR CLASS I SHARES (9/13/07). (7) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A Information Technology 21% and Class B shares including any applicable sales charges or fees. The performance of Industrials 18 the other share classes will be greater or less than that shown based on differences in Consumer Discretionary 18 inception date, fees and sales charges. Performance assumes reinvestment of dividends Health Care 12 and capital gain distributions. Energy 8 Consumer Staples 7 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Materials 6 Other (includes short-term Russell investments) 10 MidCap(R) Share Share S&P 500(R) Growth * % of total investments as of March 31, Class A Class B Index Index 2009. -------- -------- -------- ------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 3/31/00 18,780 19,779 11,824 17,720 3/31/01 8,320 8,698 9,240 9,672 3/30/02 8,003 8,306 9,263 10,127 3/28/03 5,381 5,543 6,970 7,483 3/31/04 8,173 8,356 9,418 11,197 3/31/05 8,473 8,603 10,046 12,128 3/31/06 9,891 9,965 11,225 14,878 3/31/07 9,665 9,668 12,553 15,905 3/30/08 8,354 8,293 11,916 15,181 3/31/09 4,991 4,910 7,377 9,172 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
15 TICKER SYMBOLS: A Share: PQSAX C Share: PQSCX QUALITY SMALL-CAP FUND I Share: PXQSX - QUALITY SMALL-CAP FUND (THE "FUND") is - Significant monetary and fiscal stimulus THE PRECEDING INFORMATION IS THE OPINION diversified and has an investment efforts by the federal government should OF PORTFOLIO MANAGEMENT ONLY THROUGH THE objective to seek long-term capital help curtail deteriorating economic END OF THE PERIOD OF THE REPORT AS STATED appreciation. conditions and provide the underpinnings ON THE COVER. ANY SUCH OPINIONS ARE for future recovery. Further, there is SUBJECT TO CHANGE AT ANY TIME BASED UPON For the fiscal year ended March 31, considerable incentive for financial MARKET CONDITIONS AND SHOULD NOT BE RELIED 2009, the Fund's Class A shares returned institutions to lend to worthy borrowers ON AS INVESTMENT ADVICE. -33.77%, Class C shares returned given the normalization and steepening -34.30%, and Class I shares returned of the interest-rate curve which makes INVESTING IN THE SECURITIES OF SMALL AND -33.66%. For the same period, the S&P new loans highly profitable. However, MID-SIZED COMPANIES INVOLVES GREATER RISKS 500(R) Index, a broad-based equity questionable loans made in the past pose AND PRICE VOLATILITY THAN INVESTING IN index, returned -38.09%; and the Russell solvency risk to many of our nation's LARGER, MORE ESTABLISHED COMPANIES. 2000(R) Value Index, the Fund's financial institutions today, while the style-specific benchmark, returned "shadow" banking system, which provided BECAUSE THE FUND HOLDS A LIMITED NUMBER OF -38.89%. a significant source of credit in the SECURITIES, IT WILL BE IMPACTED BY EACH past, has unraveled. In addition, SECURITY'S PERFORMANCE MORE THAN A FUND ALL PERFORMANCE FIGURES ASSUME consumer debt levels remain at historic WITH A LARGER NUMBER OF HOLDINGS. REINVESTMENT OF DISTRIBUTIONS AND highs. These factors decrease the EXCLUDE THE EFFECT OF SALES CHARGES. likelihood for a sharp economic BECAUSE THE FUND IS HEAVILY WEIGHTED IN A PERFORMANCE DATA QUOTED REPRESENTS PAST recovery. SINGLE SECTOR, IT WILL BE IMPACTED BY THAT RESULTS. PAST PERFORMANCE IS NO SECTOR'S PERFORMANCE MORE THAN A FUND WITH GUARANTEE OF FUTURE RESULTS AND CURRENT WHAT FACTORS AFFECTED THE FUND'S A BROADER SECTOR DIVERSIFICATION. PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE DURING ITS FISCAL YEAR? THE PERFORMANCE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO - High-quality stocks, as measured by S&P YOUR SHARES WHEN REDEEMED, MAY BE WORTH Quality Rankings, held up better than MORE OR LESS THAN THEIR ORIGINAL COST. low-quality stocks during the Fund's PLEASE VISIT VIRTUS.COM FOR PERFORMANCE fiscal year, which we would expect in DATA CURRENT TO THE MOST RECENT such tumultuous times. Further, stocks MONTH-END. with below-investment-grade credit ratings declined sharply, as the credit HOW DID THE MARKET PERFORM DURING THE markets continued to tighten and credit FUND'S FISCAL YEAR? spreads rose to an historic high of over 1000 basis points. - The returns of the market during the Fund's fiscal year will go down in - The Fund outperformed the Russell history as one of the worst stock market 2000(R) Value Index for the fiscal year performances in decades. ended March 31, 2009. The main factor driving the outperformance was strong Surprisingly, small-cap stocks had the stock selection and the portfolio's strongest performance on a relative high-quality focus. basis, with the Russell 2000(R) Index declining 37.50%, the S&P 500(R) Index - The Fund's performance was helped by falling 38.09%, and the Russell strong stock selection in Consumer Midcap(R) Index falling 40.81%. Cyclicals and Basic Materials and was hurt by poor stock selection in - For the fiscal year, classic defensive Financial Services and Energy. sectors, consumer staples and utilities, outperformed as expected in this environment, although they nonetheless declined. Following the continued drop in oil and natural-gas prices, energy performed the worst. Other underperforming sectors included capital goods and consumer cyclicals, reflecting the weakening economy, the largest decline in consumer spending since 1980, and the rapidly rising unemployment rate. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
16 QUALITY SMALL-CAP FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year to 3/31/09 Date CLASS A SHARES AT NAV(2) -33.77% -14.46% 6/28/06 CLASS A SHARES AT POP(3,4) -37.58 -16.28 6/28/06 CLASS C SHARES AT NAV(2) -34.30 -15.10 6/28/06 CLASS C SHARES WITH CDSC(4) -34.30 -15.10 6/28/06 CLASS I SHARES AT NAV -33.66 -14.26 6/28/06 S&P 500(R) INDEX -38.09 -13.05 6/28/06 RUSSELL 2000(R) VALUE INDEX -38.89 -16.65 6/28/06 FUND EXPENSE RATIOS(5): A SHARES: GROSS 1.63%, NET 1.47%; C SHARES: GROSS 2.38%, NET 2.22%; I SHARES: GROSS 1.42%, NET 1.25%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ Industrials 30% This chart assumes an initial investment of $10,000 made on June 28, 2006, (inception Financials 17 of the Fund) for Class A, Class C and Class I shares including any applicable sales Health Care 11 charges or fees. Performance assumes reinvestment of dividends and capital gain Consumer Staples 9 distributions. Consumer Discretionary 9 Information Technology 9 Energy 9 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Other (includes short-term investments) 6 Russell 2000(R) * % of total investments as of March 31, Share Share Share S&P 500(R) Value 2009. Class A Class B Class I Index Index -------- -------- -------- ------- -------- 6/28/06 $ 9,425 $10,000 $10,000 $10,000 $10,000 3/30/07 10,960 11,568 11,654 11,568 11,913 3/31/08 9,248 9,688 9,861 10,980 9,902 3/31/09 6,125 6,366 6,541 6,798 6,051 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
17 TICKER SYMBOLS: A Share: PKSAX B Share: PKSBX C Share: PKSCX SMALL-CAP CORE FUND I Share: PKSFX - SMALL-CAP CORE FUND (THE "FUND") is - Significant monetary and fiscal stimulus THE PRECEDING INFORMATION IS THE OPINION diversified and has an investment efforts by the federal government should OF PORTFOLIO MANAGEMENT ONLY THROUGH THE objective to seek long-term capital help curtail deteriorating economic END OF THE PERIOD OF THE REPORT AS STATED appreciation with dividend income a conditions and provide the underpinnings ON THE COVER. ANY SUCH OPINIONS ARE secondary consideration. for future recovery. Further, there is SUBJECT TO CHANGE AT ANY TIME BASED UPON considerable incentive for financial MARKET CONDITIONS AND SHOULD NOT BE RELIED For the fiscal year ended March 31, institutions to lend to worthy borrowers ON AS INVESTMENT ADVICE. 2009, the Fund's Class A shares returned given the normalization and steepening -29.71%, Class B shares returned of the interest-rate curve which makes INVESTING IN THE SECURITIES OF SMALL AND -30.30%, Class C shares returned new loans highly profitable. However, MID-SIZED COMPANIES INVOLVES GREATER RISKS -30.33%, and Class I shares returned questionable loans made in the past pose AND PRICE VOLATILITY THAN INVESTING IN -29.59%. For the same period, the S&P solvency risk to many of our nation's LARGER, MORE ESTABLISHED COMPANIES. 500(R) Index, a broad-based equity financial institutions today, while the index, returned -38.09%; the Russell "shadow" banking system, which provided BECAUSE THE FUND HOLDS A LIMITED NUMBER OF 2000(R) Index, the Fund's style-specific a significant source of credit in the SECURITIES, IT WILL BE IMPACTED BY EACH benchmark, returned -37.50%; and the past, has unraveled. In addition, SECURITY'S PERFORMANCE MORE THAN A FUND Russell 2500TM Index, the Fund's former consumer debt levels remain at historic WITH A LARGER NUMBER OF HOLDINGS. style-specific benchmark, returned highs. These factors decrease the -38.23%. likelihood for a sharp economic BECAUSE THE FUND IS HEAVILY WEIGHTED IN A recovery. SINGLE SECTOR, IT WILL BE IMPACTED BY THAT ALL PERFORMANCE FIGURES ASSUME SECTOR'S PERFORMANCE MORE THAN A FUND WITH REINVESTMENT OF DISTRIBUTIONS AND WHAT FACTORS AFFECTED THE FUND'S A BROADER SECTOR DIVERSIFICATION. EXCLUDE THE EFFECT OF SALES CHARGES. PERFORMANCE DURING ITS FISCAL YEAR? PERFORMANCE DATA QUOTED REPRESENTS PAST RESULTS. PAST PERFORMANCE IS NO - High-quality stocks, as measured by S&P GUARANTEE OF FUTURE RESULTS AND CURRENT Quality Rankings, held up better than PERFORMANCE MAY BE HIGHER OR LOWER THAN low-quality stocks during the Fund's THE PERFORMANCE SHOWN. INVESTMENT RETURN fiscal year, which we would expect in AND PRINCIPAL VALUE WILL FLUCTUATE SO such tumultuous times. Further, stocks YOUR SHARES WHEN REDEEMED, MAY BE WORTH with below-investment-grade credit MORE OR LESS THAN THEIR ORIGINAL COST. ratings declined sharply, as the credit PLEASE VISIT VIRTUS.COM FOR PERFORMANCE markets continued to tighten and credit DATA CURRENT TO THE MOST RECENT spreads rose to an historic high of over MONTH-END. 1000 basis points. HOW DID THE MARKET PERFORM DURING THE - The Fund outperformed the Russell FUND'S FISCAL YEAR? 2000(R) Index for the fiscal year ended March 31, 2009. The main factor driving - The returns of the market during the the outperformance was strong stock Fund's fiscal year will go down in selection and the portfolio's history as one of the worst stock market high-quality focus. performances in decades. Surprisingly, small-cap stocks had the strongest - The Fund's performance was helped by performance on a relative basis, with strong stock selection in Consumer the Russell 2000(R) Index declining Cyclicals and Financial Services and was 37.50%, the S&P 500(R) Index falling hurt by poor stock selection in 38.09%, and the Russell Midcap(R) Index Technology and Energy. falling 40.81%. - For the fiscal year, classic defensive sectors, consumer staples and utilities, outperformed as expected in this environment, although they nonetheless declined. Following the continued drop in oil and natural-gas prices, energy performed the worst. Other underperforming sectors included capital goods and consumer cyclicals, reflecting the weakening economy, the largest decline in consumer spending since 1980, and the rapidly rising unemployment rate. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
18 SMALL-CAP CORE FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -29.71% -5.35% -- -1.21% 8/30/02 CLASS A SHARES AT POP(3,4) -33.75 -6.46 -- -2.09 8/30/02 CLASS B SHARES AT NAV(2) -30.30 -6.02 -- -1.92 8/30/02 CLASS B SHARES WITH CDSC(4) -32.80 -6.02 -- -1.92 8/30/02 CLASS C SHARES AT NAV(2) -30.33 -6.03 -- -1.91 8/30/02 CLASS C SHARES WITH CDSC(4) -30.33 -6.03 -- -1.91 8/30/02 CLASS I SHARES AT NAV(2) -29.59 -5.13 1.51% -- -- S&P 500(R) INDEX -38.09 -4.77 -3.00 -0.14 8/30/02 RUSSELL 2000(R) INDEX -37.50 -5.24 1.93 2.51 8/30/02 RUSSELL 2500(TM) INDEX (THE FORMER STYLE-SPECIFIC BENCHMARK) -38.23 -4.45 3.33 2.87 8/30/02 FUND EXPENSE RATIOS(5): A SHARES: 1.63%, B SHARES: 2.38%, C SHARES: 2.38%, I SHARES: 1.38%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class I Industrials 24% shares including any applicable sales charges or fees. The performance of the other Information Technology 24 share classes will be greater or less than that shown based on differences in inception Health Care 17 date, fees and sales charges. Performance assumes reinvestment of dividends and capital Financials 12 gain distributions. Consumer Discretionary 10 Energy 5 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Consumer Staples 4 Other (includes short-term investments) 4 Russell Russell Share S&P 500(R) 2000(R) 2500(TM) * % of total investments as of March 31, Class I Index Index Index 2009. -------- -------- -------- ------- 3/31/99 $10,000 $10,000 $10,000 $10,000 3/31/00 11,130 11,824 13,729 14,348 3/31/01 12,938 9,240 11,625 12,410 3/30/02 15,104 9,263 13,250 14,268 3/28/03 10,718 6,970 9,678 10,844 3/31/04 15,120 9,418 15,855 17,420 3/31/05 15,898 10,046 16,713 18,850 3/31/06 18,493 11,225 21,032 23,384 3/31/07 20,134 12,553 22,275 25,309 3/30/08 16,502 11,916 19,379 22,456 3/31/09 11,620 7,377 12,112 13,871 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
19 TICKER SYMBOLS: A Share: PAMAX B Share: PSMGX SMALL-CAP GROWTH FUND C Share: PEMCX - SMALL-CAP GROWTH FUND (THE "FUND") is WHAT FACTORS AFFECTED THE FUND'S diversified and has an investment PERFORMANCE DURING ITS FISCAL YEAR? objective to seek long-term growth of capital. - Growth stocks outperformed value stocks, and large cap stocks outperformed small For the fiscal year ended March 31, cap stocks over the fiscal year ended 2009, the Fund's Class A shares returned March 31, 2009. -43.76%, Class B shares returned -44.18%, and Class C shares returned - Underperformance of the Fund relative to -44.19%. For the same period, the S&P its primary benchmark was largely 500(R) Index, a broad-based equity influenced by the negative impact of index, returned -38.09%; and the Russell security selection. Specifically, stock 2000(R) Growth Index, the Fund's selection in the Consumer Discretionary, style-specific benchmark, returned Health Care, and Consumer Staples -36.36%. sectors were detractors to performance, somewhat offset by positive stock ALL PERFORMANCE FIGURES ASSUME selection in the Materials sector. REINVESTMENT OF DISTRIBUTIONS AND EXCLUDE THE EFFECT OF SALES CHARGES. - Sector allocation decisions were a PERFORMANCE DATA QUOTED REPRESENTS PAST modest contributor to performance. RESULTS. PAST PERFORMANCE IS NO Underweight positioning in the GUARANTEE OF FUTURE RESULTS AND CURRENT underperforming Energy sector and PERFORMANCE MAY BE HIGHER OR LOWER THAN overweight positioning in the THE PERFORMANCE SHOWN. INVESTMENT RETURN outperforming Technology sector were the AND PRINCIPAL VALUE WILL FLUCTUATE SO biggest contributors to positive sector YOUR SHARES WHEN REDEEMED, MAY BE WORTH allocation. Underweighting the MORE OR LESS THAN THEIR ORIGINAL COST. outperforming Health Care sector was the PLEASE VISIT VIRTUS.COM FOR PERFORMANCE biggest detractor from positive sector DATA CURRENT TO THE MOST RECENT allocation. MONTH-END. THE PRECEDING INFORMATION IS THE OPINION HOW DID THE MARKET PERFORM DURING THE OF PORTFOLIO MANAGEMENT ONLY THROUGH THE FUND'S FISCAL YEAR? END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. ANY SUCH OPINIONS ARE - Broadly speaking, the equity markets SUBJECT TO CHANGE AT ANY TIME BASED UPON were down during the Fund's fiscal year MARKET CONDITIONS AND SHOULD NOT BE RELIED ended March 31, 2009. A slowing global ON AS INVESTMENT ADVICE. economy plus continued credit concerns pressured equity returns during the time INVESTING IN THE SECURITIES OF SMALL AND period. MID-SIZED COMPANIES INVOLVES GREATER RISKS AND PRICE VOLATILITY THAN INVESTING IN - Volatility reached a multi-year high as LARGER, MORE ESTABLISHED COMPANIES. the fiscal year progressed and investors digested a host of variables affecting BECAUSE THE FUND IS HEAVILY WEIGHTED IN A forecasted profits. Continued housing SINGLE SECTOR, IT WILL BE IMPACTED BY THAT price declines, rising unemployment, and SECTOR'S PERFORMANCE MORE THAN A FUND WITH lower earnings forecasts were countered A BROADER SECTOR DIVERSIFICATION. by unprecedented policy and monetary responses to the slowing economy. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
20 SMALL-CAP GROWTH FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ 1 year 5 years 10 years CLASS A SHARES AT NAV(2) -43.76% -10.25% -2.66% CLASS A SHARES AT POP(3,4) -46.99 -11.30 -3.23 CLASS B SHARES AT NAV(2) -44.18 -10.92 -3.38 CLASS B SHARES WITH CDSC(4) -46.41 -10.92 -3.38 CLASS C SHARES AT NAV(2) -44.19 -10.93 -3.39 CLASS C SHARES WITH CDSC(4) -44.19 -10.93 -3.39 S&P 500(R) INDEX -38.09 -4.77 -3.00 RUSSELL 2000(R) GROWTH INDEX -36.36 -5.37 -1.60 FUND EXPENSE RATIOS(5): A SHARES: 1.78%; B SHARES: 2.53%; C SHARES: 2.53%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class Information Technology 29% A, Class B and Class C shares including any applicable sales charges of fees. Health Care 22 Performance assumes reinvestment of dividends and capital gain distributions. Industrials 14 Consumer Discretionary 13 Financials 5 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Energy 4 Materials 3 Russell Other (includes short-term 2000(R) investments) 10 Share Share Share S&P 500(R) Growth Class A Class B Class C Index Index * % of total investments as of March 31, -------- -------- -------- ------- -------- 2009. 3/31/99 $ 9,425 $10,000 $10,000 $10,000 $10,000 3/31/00 21,869 23,036 23,033 11,824 15,904 3/31/01 11,142 11,648 11,645 9,240 9,573 3/30/02 10,643 11,044 11,044 9,263 10,047 3/28/03 7,459 7,683 7,682 6,970 6,869 3/31/04 12,364 12,637 12,639 9,418 11,208 3/31/05 11,666 11,836 11,837 10,046 11,306 3/31/06 15,159 15,261 15,263 11,225 14,453 3/31/07 14,926 14,913 14,915 12,553 14,679 3/30/08 12,803 12,697 12,698 11,916 13,367 3/31/09 7,201 7,088 7,087 7,377 8,506 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
21 TICKER SYMBOLS: A Share: PSGAX C Share: PSGCX SMALL-CAP SUSTAINABLE GROWTH FUND I Share: PXSGX - SMALL-CAP SUSTAINABLE GROWTH FUND (THE - Significant monetary and fiscal stimulus THE PRECEDING INFORMATION IS THE OPINION "FUND") is diversified and has an efforts by the federal government should OF PORTFOLIO MANAGEMENT ONLY THROUGH THE investment objective to seek long-term help curtail deteriorating economic END OF THE PERIOD OF THE REPORT AS STATED capital appreciation. conditions and provide the underpinnings ON THE COVER. ANY SUCH OPINIONS ARE for future recovery. Further, there is SUBJECT TO CHANGE AT ANY TIME BASED UPON For the fiscal year ended March 31, considerable incentive for financial MARKET CONDITIONS AND SHOULD NOT BE RELIED 2009, the Fund's Class A shares returned institutions to lend to worthy borrowers ON AS INVESTMENT ADVICE. -32.24%, Class C shares returned given the normalization and steepening -32.89%, and Class I shares returned of the interest-rate curve which makes INVESTING IN THE SECURITIES OF SMALL AND -32.75%. For the same period, the S&P new loans highly profitable. However, MID-SIZED COMPANIES INVOLVES GREATER RISKS 500(R) Index, a broad-based equity questionable loans made in the past pose AND PRICE VOLATILITY THAN INVESTING IN index, returned -38.09%; and the Russell solvency risk to many of our nation's LARGER, MORE ESTABLISHED COMPANIES. 2000(R) Growth Index, the Fund's financial institutions today, while the style-specific benchmark, returned "shadow" banking system, which provided BECAUSE THE FUND HOLDS A LIMITED NUMBER OF -36.36%. a significant source of credit in the SECURITIES, IT WILL BE IMPACTED BY EACH past, has unraveled. In addition, SECURITY'S PERFORMANCE MORE THAN A FUND ALL PERFORMANCE FIGURES ASSUME consumer debt levels remain at historic WITH A LARGER NUMBER OF HOLDINGS. REINVESTMENT OF DISTRIBUTIONS AND highs. These factors decrease the EXCLUDE THE EFFECT OF SALES CHARGES. likelihood for a sharp economic BECAUSE THE FUND IS HEAVILY WEIGHTED IN A PERFORMANCE DATA QUOTED REPRESENTS PAST recovery. SINGLE SECTOR, IT WILL BE IMPACTED BY THAT RESULTS. PAST PERFORMANCE IS NO SECTOR'S PERFORMANCE MORE THAN A FUND WITH GUARANTEE OF FUTURE RESULTS AND CURRENT WHAT FACTORS AFFECTED THE FUND'S A BROADER SECTOR DIVERSIFICATION. PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE DURING ITS FISCAL YEAR? THE PERFORMANCE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO - High-quality stocks, as measured by S&P YOUR SHARES WHEN REDEEMED, MAY BE WORTH Quality Rankings, held up better than MORE OR LESS THAN THEIR ORIGINAL COST. low-quality stocks during the Fund's PLEASE VISIT VIRTUS.COM FOR PERFORMANCE fiscal year, which we would expect in DATA CURRENT TO THE MOST RECENT such tumultuous times. Further, stocks MONTH-END. with below-investment-grade credit ratings declined sharply, as the credit HOW DID THE MARKET PERFORM DURING THE markets continued to tighten and credit FUND'S FISCAL YEAR? spreads rose to an historic high of over 1000 basis points. - The returns of the market during the Fund's fiscal year will go down in - The Fund outperformed the Russell history as one of the worst stock market 2000(R) Growth Index for the fiscal year performances in decades. Surprisingly, ended March 31, 2009. The main factor small-cap stocks had the strongest driving the outperformance was the performance on a relative basis, with portfolio's high-quality focus. the Russell 2000(R) Index declining 37.50%, the S&P 500(R) Index falling - The Fund's performance was helped by 38.09%, and the Russell Midcap(R) Index strong stock selection in Consumer falling 40.81%. Cyclicals and Basic Materials and was hurt by poor stock selection in - For the fiscal year, classic defensive Financial Services and Energy. sectors, consumer staples and utilities, outperformed as expected in this environment, although they nonetheless declined. Following the continued drop in oil and natural-gas prices, energy performed the worst. Other underperforming sectors included capital goods and consumer cyclicals, reflecting the weakening economy, the largest decline in consumer spending since 1980, and the rapidly rising unemployment rate. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
22 SMALL-CAP SUSTAINABLE GROWTH FUND (CONTINUED) AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year to 3/31/09 Date CLASS A SHARES AT NAV(2) -32.24% -15.91% 6/28/06 CLASS A SHARES AT POP(3) -36.14 -17.69 6/28/06 CLASS C SHARES AT NAV(2) -32.89 -16.60 6/28/06 CLASS C SHARES WITH CDSC(4) -32.89 -16.60 6/28/06 CLASS I SHARES AT NAV -32.75 -16.01 6/28/06 S&P 500(R) INDEX -38.09 -13.05 6/28/06 RUSSELL 2000(R) GROWTH INDEX -36.36 -13.49 6/28/06 FUND EXPENSE RATIOS(5): A SHARES: GROSS 1.84%, NET 1.54%; C SHARES: GROSS 2.60%, NET 2.29%; I SHARES: GROSS 1.60%, NET 1.30%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER IN EFFECT THROUGH 9/30/08. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on June 28, 2006, (inception Information Technology 40% of the Fund) for Class A, Class C and Class I shares including any applicable sales Health Care 16 charges or fees. Performance assumes reinvestment of dividends and capital gain Industrials 15 distributions. Energy 10 Consumer Discretionary 9 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Financials 4 Other (includes short-term Russell investments) 6 2000(R) Share Share Share S&P 500(R) Growth * % of total investments as of March 31, Class A Class B Class I Index Index 2009. -------- -------- -------- ------- -------- 6/28/06 $9,425 $10,000 $10,000 $10,000 $10,000 3/30/07 9,727 10,260 10,330 11,568 11,570 3/31/08 8,624 9,030 9,190 10,980 10,535 3/31/09 5,844 6,060 6,180 6,798 6,704 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
23 TICKER SYMBOLS: A Share: PSTAX B Share: PBTHX C Share: SSTFX STRATEGIC GROWTH FUND I Share: PLXGX - STRATEGIC GROWTH FUND (THE "FUND") is WHAT FACTORS AFFECTED THE FUND'S THE PRECEDING INFORMATION IS THE OPINION diversified and has an investment PERFORMANCE DURING ITS FISCAL YEAR? OF PORTFOLIO MANAGEMENT ONLY THROUGH THE objective to seek long-term capital END OF THE PERIOD OF THE REPORT AS STATED growth. - Growth stocks outperformed value stocks, ON THE COVER. ANY SUCH OPINIONS ARE and large cap stocks outperformed small SUBJECT TO CHANGE AT ANY TIME BASED UPON For the fiscal year ended March 31, cap stocks over the fiscal year ended MARKET CONDITIONS AND SHOULD NOT BE RELIED 2009, the Fund's Class A shares returned March 31, 2009. ON AS INVESTMENT ADVICE. -39.16%, Class B shares returned -39.62%, Class C shares returned - Underperformance of the Fund relative to INVESTING IN THE SECURITIES OF SMALL AND -39.69%, and Class I shares returned its primary benchmark was largely MID-SIZED COMPANIES INVOLVES GREATER RISKS -38.99%. For the same period, the S&P influenced by the negative impact of AND PRICE VOLATILITY THAN INVESTING IN 500(R) Index, a broad-based equity security selection. Specifically, stock LARGER, MORE ESTABLISHED COMPANIES. index, returned -38.09%; and the Russell selection in the Industrials, Consumer 1000(R) Growth Index, the Fund's Staples, and Technology sectors were BECAUSE THE FUND IS HEAVILY WEIGHTED IN A style-specific benchmark, returned detractors to performance, somewhat SINGLE SECTOR, IT WILL BE IMPACTED BY THAT -34.28%. offset by positive stock selection in SECTOR'S PERFORMANCE MORE THAN A FUND WITH the Health Care and Materials sectors. A BROADER SECTOR DIVERSIFICATION. ALL PERFORMANCE FIGURES ASSUME REINVESTMENT OF DISTRIBUTIONS AND - Sector allocation decisions were EXCLUDE THE EFFECT OF SALES CHARGES. positive contributors to performance. PERFORMANCE DATA QUOTED REPRESENTS PAST Underweight positioning in the RESULTS. PAST PERFORMANCE IS NO underperforming Energy sector and GUARANTEE OF FUTURE RESULTS AND CURRENT overweight positioning in the PERFORMANCE MAY BE HIGHER OR LOWER THAN outperforming Technology sector were the THE PERFORMANCE SHOWN. INVESTMENT RETURN biggest contributors to positive sector AND PRINCIPAL VALUE WILL FLUCTUATE SO allocation. Underweighting the YOUR SHARES WHEN REDEEMED, MAY BE WORTH outperforming Consumer Staples sector MORE OR LESS THAN THEIR ORIGINAL COST. was the biggest detractor from positive PLEASE VISIT VIRTUS.COM FOR PERFORMANCE sector allocation. DATA CURRENT TO THE MOST RECENT MONTH-END. HOW DID THE MARKET PERFORM DURING THE FUND'S FISCAL YEAR? - Broadly speaking, the equity markets were down during the Fund's fiscal year ended March 31, 2009. A slowing global economy plus continued credit concerns pressured equity returns during the period. - Volatility reached a multi-year high as the fiscal year progressed and investors digested a host of variables affecting forecasted profits. Continued housing price declines, rising unemployment, and lower earnings forecasts were countered by unprecedented policy and monetary responses to the slowing economy. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
24 STRATEGIC GROWTH FUND (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year 5 years 10 years to 3/31/09 Date CLASS A SHARES AT NAV(2) -39.16% -8.08% -6.93% -- -- CLASS A SHARES AT POP(3,4) -42.66 -9.17 -7.48 -- -- CLASS B SHARES AT NAV(2) -39.62 -8.79 -7.63 -- -- CLASS B SHARES WITH CDSC(4) -42.04 -8.79 -7.63 -- -- CLASS C SHARES AT NAV(2) -39.69 -8.79 -7.63 -- -- CLASS C SHARES WITH CDSC(4) -39.69 -8.79 -7.63 -- -- CLASS I SHARES AT NAV(2) -38.99 -- -- -16.93% 9/29/06 S&P 500(R) INDEX -38.09 -4.77 -3.00 -16.79 9/29/06 RUSSELL 1000(R) GROWTH INDEX -34.28 -4.38 -5.26 -13.32 9/29/06 FUND EXPENSE RATIOS(5): A SHARES: 1.38%, B SHARES: 2.13%, C SHARES: 2.13%, I SHARES: 1.13%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CLASS B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* --------------------------------------------------------------------------------------- ------------------------------------------ This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class Information Technology 34% A, Class B shares and Class C shares including any applicable sales charges or fees. Health Care 15 The performance of the other share class will be greater or less than that shown based Industrials 11 on differences in inception date, fees and sales charges. Performance assumes Consumer Staples 11 reinvestment of dividends and capital gain distributions. Consumer Discretionary 10 Energy 7 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Materials 6 Other (includes short-term Russell investments) 6 1000(R) Share Share Share S&P 500(R) Growth * % of total investments as of March 31, Class A Class B Class C Index Index 2009. -------- -------- -------- ------- -------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 $10,000 3/31/00 15,171 15,975 15,981 11,824 13,412 3/31/01 8,847 9,240 9,248 9,240 7,683 3/30/02 7,777 8,070 8,070 9,263 7,529 3/28/03 5,201 5,351 5,359 6,970 5,514 3/31/04 7,006 7,161 7,161 9,418 7,289 3/31/05 7,070 7,170 7,178 10,046 7,373 3/31/06 7,658 7,700 7,708 11,225 8,343 3/31/07 7,690 7,682 7,690 12,553 8,931 3/30/08 7,555 7,488 7,496 11,916 8,864 3/31/09 4,596 4,521 4,521 7,377 5,825 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
25 TICKER SYMBOLS: A Share: PPTAX C Share: PPTCX VALUE OPPORTUNITIES FUND I Share: PIPTX - VALUE OPPORTUNITIES FUND (THE "FUND") is WHAT FACTORS AFFECTED THE FUND'S diversified and has an investment PERFORMANCE DURING ITS FISCAL YEAR? objective to seek long-term capital appreciation. - While the Fund was down in absolute terms in a sharply declining market For the fiscal year ended March 31, environment, it did post a return in 2009, the Fund's Class A shares returned excess of the broad market index. Most -39.44%, Class C shares returned -39.93% of the value added came from active and Class I shares returned -42.22% for stock selection, though there was some the period June 6, 2008, (inception) to additional return from active sector March 31, 2009. For the fiscal year, the allocations. The strongest stock value S&P 500(R) Index, a broad-based equity was contributed in the finance, capital index, returned -38.09%; and the Russell equipment, services and energy sectors. 1000(R) Value Index, the Fund's In the finance area, the portfolio style-specific benchmark, returned successfully avoided some of the more -42.42%. troubled companies over the year, including Bank of America, Citigroup and ALL PERFORMANCE FIGURES ASSUME AIG. The Fund also underweighted General REINVESTMENT OF DISTRIBUTIONS AND Electric and several underperforming EXCLUDE THE EFFECT OF SALES CHARGES. energy companies such as Devon Energy. PERFORMANCE DATA QUOTED REPRESENTS PAST Active holdings that helped return RESULTS. PAST PERFORMANCE IS NO included Computer Sciences Corp. and GUARANTEE OF FUTURE RESULTS AND CURRENT Watson Pharmaceuticals. Underweighting PERFORMANCE MAY BE HIGHER OR LOWER THAN finance and banks was a significant THE PERFORMANCE SHOWN. INVESTMENT RETURN source of value at the sector level. AND PRINCIPAL VALUE WILL FLUCTUATE SO YOUR SHARES WHEN REDEEMED, MAY BE WORTH - Less successful positioning included the MORE OR LESS THAN THEIR ORIGINAL COST. underweightings in utilities and PLEASE VISIT VIRTUS.COM FOR PERFORMANCE telecoms, as well as active stock DATA CURRENT TO THE MOST RECENT selection in materials, staples and MONTH-END. durables. The Fund's holdings in US Steel, Mosaic and auto parts maker HOW DID THE MARKET PERFORM DURING THE Autoliv Inc. were among the stocks that FUND'S FISCAL YEAR? detracted from active return over the year. - In the trailing 12-month period ended March 31, 2009, the U.S. and other world THE PRECEDING INFORMATION IS THE OPINION equity markets saw market volatility OF PORTFOLIO MANAGEMENT ONLY THROUGH THE touch historic proportions as a global END OF THE PERIOD OF THE REPORT AS STATED economic slowdown gave way to ON THE COVER. ANY SUCH OPINIONS ARE recessionary conditions. Following the SUBJECT TO CHANGE AT ANY TIME BASED UPON collapse of a number of key financial MARKET CONDITIONS AND SHOULD NOT BE RELIED institutions under the weight of heavy ON AS INVESTMENT ADVICE. losses on mortgage-linked securities and the deepening economic woes that ensued, INVESTING IN THE SECURITIES OF SMALL AND investor sentiment became bearish in the MID-SIZED COMPANIES INVOLVES GREATER RISKS extreme. The U.S. market saw sharp PRICE VOLATILITY THAN INVESTING IN losses over most of the period, though SECURITIES FROM LARGER, MORE ESTABLISHED March 2009 saw a partial rebound as COMPANIES. investors were encouraged by the Obama administration's aggressive economic stimulus and bank rescue measures. For the period as a whole however, the U.S. market was down significantly and value stocks were down by more. The move by investors away from style exposure to more conservative, core-like positions is a phenomenon often seen during environments of high risk aversion like the one of the past year. For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
26 VALUE OPPORTUNITIES FUND (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN(1) for periods ended 3/31/09 ------------------------------------------------------------------------------------------------------------------------------------ Inception Inception 1 year to 3/31/09 Date CLASS A SHARES AT NAV(2) -39.44% -9.93% 7/29/05 CLASS A SHARES AT POP(3,4) -42.93 -11.37 7/29/05 CLASS C SHARES AT NAV(2) -39.93 -10.58 7/29/05 CLASS C SHARES WITH CDSC(4) -39.93 -10.58 7/29/05 CLASS I SHARES AT NAV -- -42.22 6/06/08 S&P 500(R) INDEX -38.09 NOTE 5 NOTE 5 RUSSELL 1000(R) VALUE INDEX -42.42 NOTE 6 NOTE 6 FUND EXPENSE RATIOS(7): A SHARES: GROSS 1.38%, NET 1.35%; C SHARES: GROSS 2.13%, NET 2.10%; I SHARES: GROSS 1.13%, NET 1.10%. ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES AND ALL REDEMPTIONS OF CLASS C SHARES ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE S&P 500(R) INDEX RETURNS SINCE INCEPTION OF CLASS C SHARES (7/29/05) ARE -9.31% AND -40.06% FOR CLASS I SHARES (6/6/08). (6) THE RUSSELL 1000(R) VALUE INDEX RETURNS SINCE INCEPTION OF CLASS C SHARES (7/29/05) ARE -10.85% AND -43.22% FOR CLASS I SHARES (6/6/08). (7) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. NET EXPENSE: EXPENSES REDUCED BY A VOLUNTARY FEE WAIVER AND EXCLUDING EXTRAORDINARY EXPENSES. GROSS EXPENSE: DOES NOT REFLECT THE EFFECT OF VOLUNTARY FEE WAIVER. GROWTH OF $10,000 for periods ended 3/31 SECTOR WEIGHTINGS as of 3/31/09* ---------------------------------------------------------------------------------- --------------------------------------------- This chart assumes an initial investment of $10,000 made on July 29, 2005, Health Care 19% (inception of the Fund) for Class A and Class C shares including any applicable Financials 19 sales charges or fees. Performance assumes reinvestment of dividends and capital Energy 16 gain distributions. Consumer Staples 12 Consumer Discretionary 11 [CHART OMITTED - EDGAR REPRESENTATION OF DATA FOLLOWS] Information Technology 7 Industrials 6 Russell Other (includes short-term investments) 10 1000(R) Share Share S&P 500(R) Value * % of total investments as of March 31, 2009. Class A Class C Index Index -------- -------- -------- ------- 7/29/05 $ 9,425 $10,000 $10,000 $10,000 3/31/06 10,311 10,895 10,626 10,831 3/30/07 12,481 13,096 11,884 12,654 3/31/08 10,597 11,038 11,281 11,389 3/31/09 6,417 6,630 6,984 6,558 For information regarding the indexes and certain investment terms, see the glossary starting on page 2.
27 VIRTUS ALL-CAP GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE -------- ------- -------- ------- -------- ------- COMMON STOCKS+--98.1% INDUSTRIALS--10.9% EXCHANGE TRADED FUNDS-- ABB Ltd. Sponsored ADR 31,900 $ 445 1.2% CONSUMER DISCRETIONARY-- Aegean Marine Petroleum Financial Select Sector 10.5% Network, Inc. 37,700 632 SPDR Fund 64,000 $ 564 Amazon.com, Inc.(2) 9,100 $ 668 Esterline Technologies ------------------------ ---------------- American Eagle Corp.(2) 7,000 141 TOTAL EXCHANGE TRADED Outfitters, Inc. 19,000 233 Harsco Corp. 31,600 701 FUNDS DreamWorks Animation Joy Global, Inc. 28,600 609 (IDENTIFIED COST $621) 564 SKG, Inc. Class A(2) 19,500 422 Norfolk Southern Corp. 18,400 621 ------------------------ ---------------- Guess?, Inc. 27,100 571 Perini Corp.(2) 20,900 257 TOTAL LONG TERM Kohl's Corp.(2) 12,200 516 SPX Corp. 5,700 268 INVESTMENTS--99.3% LKQ Corp.(2) 31,800 454 Stericycle, Inc.(2) 14,800 706 (IDENTIFIED COST Lowe's Cos., Inc. 25,000 456 United Technologies Corp. 14,500 623 $57,089) 45,538 McDonald's Corp. 12,400 677 ------- ------------------------ ---------------- Yum! Brands, Inc. 29,000 797 5,003 SHORT-TERM INVESTMENTS--2.3% ------- ------- MONEY MARKET MUTUAL 4,794 INFORMATION TECHNOLOGY-- FUNDS--2.3% ------- 35.1% State Street CONSUMER STAPLES--9.6% Apple, Inc.(2) 9,700 1,020 Institutional Colgate-Palmolive Co. 15,700 926 Applied Materials, Inc. 96,200 1,034 Liquid Reserves Fund CVS Caremark Corp. 25,300 696 Broadcom Corp.(2) 53,400 1,067 (seven-day effective Kroger Co. (The) 39,700 842 Cisco Systems, Inc.(2) 59,000 989 yield 0.577%) 1,077,425 1,077 Philip Morris Corning, Inc. 51,600 685 ------------------------ ---------------- International, Inc. 12,200 434 Cybersource Corp.(2) 48,600 720 TOTAL SHORT-TERM Ralcorp Holdings, Inc.(2) 16,200 873 EMC Corp.(2) 78,300 893 INVESTMENTS Safeway, Inc. 31,100 628 Google, Inc.(2) 3,300 1,148 (IDENTIFIED COST ------- Hewlett-Packard Co. 33,600 1,077 $1,077) 1,077 4,399 International Business ------------------------ ---------------- ------- Machines Corp. 9,800 950 TOTAL INVESTMENTS--101.6% ENERGY--7.2% Marvell Technology Group (IDENTIFIED COST Barrett Corp. (Bill)(2) 34,400 765 Ltd.(2) 77,200 707 $58,166) 46,615(1) Chesapeake Energy Corp. 27,000 461 Microsemi Corp.(2) 23,800 276 Other assets and Schlumberger Ltd. 17,900 727 Microsoft Corp. 26,900 494 liabilities, net-- Transocean Ltd.(2) 9,500 559 Neutral Tandem, Inc.(2) 19,100 470 (1.6)% (737) XTO Energy, Inc. 26,200 802 Nuance Communications, ------ ------- Inc.(2) 69,100 750 NET ASSETS--100.0% $45,878 3,314 Oracle Corp. 43,200 781 ======= ------- PMC-Sierra, Inc.(2) 70,900 452 FINANCIALS--2.7% QUALCOMM, Inc. 16,600 646 + Security classifications are based on BlackRock, Inc. 3,800 494 Research In Motion Ltd.(2) 9,100 392 sectors. Goldman Sachs Group, Inc. Silicon Laboratories, (The) 6,800 721 Inc.(2) 25,800 681 COUNTRY WEIGHTINGS as of 3/31/09* ------- Symantec Corp.(2) 30,600 457 ------------------------------------------ 1,215 Websense, Inc.(2) 35,000 420 United States 92% ------- ------- Canada 2 HEALTH CARE--14.3% 16,109 Netherlands 2 Abbott Laboratories 14,300 682 ------- Switzerland 2 Allergan, Inc. 12,900 616 MATERIALS--4.3% Greece 1 Amgen, Inc.(2) 8,000 396 FMC Corp. 15,600 673 Japan 1 Bristol-Myers Squibb Co. 41,200 903 Monsanto Co. 9,300 773 ------------------------------------------ Celgene Corp.(2) 19,600 870 Potash Corp. of * FOREIGN SECURITY COUNTRY DETERMINATION: Cephalon, Inc.(2) 6,300 429 Saskatchewan, Inc. 6,400 517 A combination of the following Genzyme Corp.(2) 10,500 624 ------- criteria is used to assign the Gilead Sciences, Inc.(2) 14,500 672 1,963 countries of risk listed in the table Mylan, Inc.(2) 31,500 422 ------- shown above: country of incorporation, NuVasive, Inc.(2) 11,400 358 TELECOMMUNICATION SERVICES--3.5% actual building address, primary Perrigo Co. 24,500 608 American Tower Corp. exchange on which security is traded ------- Class A(2) 28,900 880 and country in which the greatest 6,580 Syniverse Holdings, percentage of company revenue is ------- Inc.(2) 45,500 717 generated. ------- ------------------------------------------ 1,597 ------------------------------------------ TOTAL COMMON STOCKS (IDENTIFIED COST $56,468) 44,974 ------------------------------------------ Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 28 VIRTUS GROWTH & INCOME FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE -------- ------- ------- -------- -------- -------- COMMON STOCKS+--96.0% INDUSTRIALS--12.0% SHORT-TERM INVESTMENTS--2.0% Boeing Co. (The) 38,000 $ 1,352 CONSUMER DISCRETIONARY--6.5% Caterpillar, Inc. 97,000 2,712 MONEY MARKET MUTUAL FUNDS--2.0% McDonald's Corp. 51,000 $ 2,783 Continental Airlines, State Street Institutional NIKE Class B 61,500 2,884 Inc. Class B(2) 312,300 2,751 Liquid Reserves Fund Under Armour, Inc. Foster Wheeler AG(2) 149,500 2,612 (seven-day effective Class A(2) 159,700 2,624 L-3 Communications yield 0.577%) 2,506,327 $ 2,506 ------- Holdings, Inc. 44,500 3,017 ------------------------------------------- 8,291 Union Pacific Corp. 68,000 2,796 TOTAL SHORT-TERM INVESTMENTS ------- -------- (IDENTIFIED COST $2,506) 2,506 15,240 ------------------------------------------- CONSUMER STAPLES--11.1% -------- Altria Group, Inc. 167,700 2,687 TOTAL INVESTMENTS--100.2% Bunge Ltd. 50,600 2,866 INFORMATION TECHNOLOGY--16.3% (IDENTIFIED COST $126,087) 127,176(1) Costco Wholesale Corp. 63,500 2,941 Cisco Systems, Inc.(2) 171,300 2,873 PepsiCo, Inc. 57,100 2,940 Corning, Inc. 226,100 3,000 Other assets and Philip Morris Hewlett-Packard Co. 97,500 3,126 liabilities, net--(0.2)% (268) International, Inc. 73,800 2,626 International Business -------- ------- Machines Corp. 30,700 2,974 NET ASSETS--100.0% $126,908 14,060 Microsoft Corp. 166,600 3,060 ======== ------- Nokia Oyj Sponsored ADR 238,700 2,786 QUALCOMM, Inc. 74,400 2,895 + Security classifications are based on ENERGY--13.6% -------- sectors. Chesapeake Energy Corp. 73,300 1,251 20,714 ConocoPhillips 73,800 2,890 -------- Halliburton Co. 162,300 2,511 Massey Energy Co. 119,800 1,212 MATERIALS--8.1% COUNTRY WEIGHTINGS as of 3/31/09* Occidental Petroleum Alcoa, Inc. 234,400 1,721 --------------------------------------------- Corp. 47,000 2,616 Freeport-McMoRan United States 91% Petroleo Brasileiro SA Copper & Gold, Inc. 68,000 2,591 Canada 3 ADR 91,100 2,776 Nucor Corp. 79,600 3,038 Brazil 2 St. Mary Land & Potash Corp. of Finland 2 Exploration Co. 97,000 1,283 Saskatchewan, Inc. 36,500 2,950 Switzerland 2 Valero Energy Corp. 152,700 2,733 -------- --------------------------------------------- ------- 10,300 * FOREIGN SECURITY COUNTRY DETERMINATION: 17,272 -------- ------- A combination of the following criteria is TELECOMMUNICATION SERVICES--4.4% used to assign the countries of risk listed FINANCIALS--10.8% AT&T, Inc. 110,000 2,772 in the table shown above: country of Allstate Corp. (The) 143,800 2,754 Verizon Communications, incorporation, actual building address, Goldman Sachs Group, Inc 91,800 2,772 primary exchange on which security is Inc.(The) 26,800 2,841 -------- traded and country in which the greatest Hudson City Bancorp, Inc. 235,100 2,748 5,544 percentage of company revenue is generated. Reinsurance Group of ----------------------------------------- ------------------------------------------- America, Inc. 93,000 3,012 TOTAL COMMON STOCKS Wells Fargo & Co. 164,100 2,337 (IDENTIFIED COST $120,713) 121,851 ------- ----------------------------------------- 13,692 ------- EXCHANGE TRADED FUNDS--2.2% PowerShares Deutsche HEALTH CARE--13.2% Bank Agriculture Celgene Corp.(2) 59,900 2,660 Fund(2) 115,100 2,819 Gilead Sciences, ----------------------------------------- Inc.(2) 62,600 2,900 TOTAL EXCHANGE TRADED FUNDS Johnson & Johnson 55,800 2,935 (IDENTIFIED COST $2,868) 2,819 Merck & Co., Inc. 104,800 2,803 ----------------------------------------- St. Jude Medical, TOTAL LONG TERM INVESTMENTS--98.2% Inc.(2) 75,600 2,746 (IDENTIFIED COST $123,581) 124,670 UnitedHealth Group, Inc. 128,700 2,694 ----------------------------------------- ------- 16,738 ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 29 VIRTUS GROWTH OPPORTUNITIES FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--99.6% INDUSTRIALS--5.4% SHORT-TERM INVESTMENTS--1.3% First Solar, Inc.(2) 1,290 $ 171 CONSUMER DISCRETIONARY--13.3% Jacobs Engineering MONEY MARKET MUTUAL FUNDS--1.3% Amazon.com, Inc.(2) 7,480 $ 549 Group, Inc.(2) 3,300 128 Best Buy Co., Inc. 7,050 268 Robert Half BlackRock Liquidity Darden Restaurants, Inc. 6,350 218 International, Inc. 15,240 272 Funds Temp Fund Guess?, Inc. 9,220 194 Stericycle, Inc.(2) 4,960 237 Portfolio - Institutional Kohl's Corp.(2) 6,290 266 Union Pacific Corp. 4,310 177 Shares (seven-day Lowe's Cos., Inc. 12,050 220 ------- effective yield 0.590%) 240,131 $ 240 NVR, Inc.(2) 730 312 985 ----------------------------------------- Pulte Homes, Inc. 26,680 292 ------- TOTAL SHORT-TERM INVESTMENTS Wynn Resorts Ltd.(2) 6,180 123 (IDENTIFIED COST $240) 240 ------- INFORMATION TECHNOLOGY--40.6% ----------------------------------------- 2,442 Activision Blizzard, ------- Inc.(2) 19,530 204 TOTAL INVESTMENTS--100.9% Adobe Systems, Inc.(2) 7,750 166 (IDENTIFIED COST $19,730) 18,541(1) CONSUMER STAPLES--2.3% Apple, Inc.(2) 6,090 640 Other assets and Archer-Daniels-Midland Applied Materials, Inc. 31,960 343 liabilities, net--(0.9)% (173) Co. 11,880 330 ASML Holding N.V. 9,660 169 ------- Whole Foods Market, Inc. 5,350 90 BMC Software, Inc.(2) 5,280 174 NET ASSETS--100.0% $18,368 ------- Broadcom Corp.(2) 20,390 407 ======= 420 Corning, Inc. 14,500 192 ------- F5 Networks, Inc.(2) 7,820 164 + Security classifications are based on Google, Inc.(2) 2,005 698 sectors. ENERGY--6.1% Intel Corp. 35,010 527 Occidental Petroleum International Business Corp. 5,520 307 Machines Corp. 8,470 821 COUNTRY WEIGHTINGS as of 3/31/09* Peabody Energy Corp. 8,860 222 Juniper Networks, Inc.(2) 12,550 189 --------------------------------------------- Petrohawk Energy Corp.(2) 6,180 119 Lam Research Corp.(2) 14,790 337 United States 93% Southwestern Energy McAfee, Inc.(2) 7,480 251 China 2 Co.(2) 7,760 231 NetApp, Inc.(2) 9,290 138 Australia 1 Weatherford International QUALCOMM, Inc. 23,590 918 Canada 1 Ltd.(2) 22,780 252 Salesforce.com, Inc.(2) 6,250 204 Israel 1 ------- VeriSign, Inc.(2) 13,780 260 Netherlands 1 1,131 Visa, Inc. Class A 4,040 225 Switzerland 1 ------- Xilinx, Inc. 22,950 440 --------------------------------------------- ------- * FOREIGN SECURITY COUNTRY DETERMINATION: FINANCIALS--7.5% 7,467 A combination of the following criteria is BlackRock, Inc. 1,970 256 ------- used to assign the countries of risk listed Goldman Sachs Group, Inc. in the table shown above: country of (The) 2,230 236 MATERIALS--5.6% incorporation, actual building address, IntercontinentalExchange, BHP Billiton Ltd. primary exchange on which security is Inc.(2) 2,780 207 Sponsored ADR 5,970 266 traded and country in which the greatest Northern Trust Corp. 4,680 280 Freeport-McMoRan percentage of company revenue is generated. People's United Copper & Gold, Inc. 3,300 126 --------------------------------------------- Financial, Inc. 8,780 158 Monsanto Co. 4,970 413 T. Rowe Price Group, Inc. 8,350 241 Potash Corp. of ------- Saskatchewan, Inc. 2,770 224 1,378 ------- ------- 1,029 ------- HEALTH CARE--15.4% Alexion Pharmaceuticals, TELECOMMUNICATION SERVICES--3.4% Inc.(2) 9,310 351 American Tower Corp. Allergan, Inc. 3,810 182 Class A(2) 6,850 208 Baxter International, China Mobile Ltd. Inc. 5,680 291 Sponsored ADR 6,680 291 Celgene Corp.(2) 5,360 238 MetroPCS Communications, DaVita, Inc.(2) 3,640 160 Inc.(2) 7,470 128 Express Scripts, Inc.(2) 3,020 139 ------- Gilead Sciences, Inc.(2) 12,050 558 627 Intuitive Surgical, ----------------------------------------- Inc.(2) 775 74 TOTAL COMMON STOCKS Myriad Genetics, Inc.(2) 4,560 207 (IDENTIFIED COST $19,490) 18,301 Roche Holding AG ----------------------------------------- Sponsored ADR 6,800 234 TOTAL LONG TERM INVESTMENTS--99.6% St. Jude Medical, Inc.(2) 6,120 222 (IDENTIFIED COST $19,490) 18,301 Teva Pharmaceutical ----------------------------------------- Industries Ltd. Sponsored ADR 3,680 166 ------- 2,822 ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 30 VIRTUS INCOME & GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
PAR PAR PAR VALUE VALUE VALUE VALUE VALUE VALUE -------- ------- -------- ------- -------- ------- MUNICIPAL BONDS--5.1% AGENCY--CONTINUED NON-AGENCY--CONTINUED GNMA Lehman Brothers - UBS ARIZONA--0.7% 6.500%, 11/15/23 $ 61 $ 64 Commercial Mortgage Salt River Project 6.500%, 11/15/23 93 98 Trust 04-C7, A6 Agricultural Improvement 6.500%, 11/15/23 10 10 4.786%, 10/15/29(3) $ 1,800 $ 1,410 & Power District 6.500%, 11/15/23 116 122 06-C6, A4 Electric System Series A 6.500%, 12/15/23 126 132 5.372%, 9/15/39 775 558 5.000%, 1/1/38 $ 1,260 $ 1,241 6.500%, 12/15/23 86 91 07-C2, A2 ------- 6.500%, 12/15/23 106 111 5.303%, 2/15/40 1,550 1,283 DELAWARE--0.7% 6.500%, 3/15/24 78 83 07-C6, A2 Delaware Transportation 6.500%, 4/15/24 43 45 5.845%, 7/15/40 175 148 Authority Motor Fuel Tax 6.500%, 7/15/24 481 507 07-C7, A3 Series A (MBIA Insured) ------- 5.866%, 9/15/45(3) 600 420 5.000%, 7/1/19 980 1,076 18,718 Merrill Lynch Mortgage ------- ------- Trust 06-C1, AM FLORIDA--0.1% NON-AGENCY--12.1% 5.657%, 5/12/39 (3) 850 417 Miami-Dade County Bear Stearns Adjustable Morgan Stanley Capital I Educational Facilities Rate Mortgage Trust 06-T23, A4 Authority Taxable 05-12, 13A1 5.811%, 8/12/41 (3) 955 852 Series C 5.445%, 2/25/36 (3) 662 362 Timberstar Trust 06-1A, 5.480%, 4/1/16 125 123 Bear Stearns Commercial A 144A ------- Mortgage Securities 5.668%, 10/15/36 (2) 800 640 MINNESOTA--1.0% 06-PW12, A4 Wachovia Bank Commercial State of Minnesota 5.718%, 9/11/38(3) 1,185 1,010 Mortgage Trust 5.000%, 8/1/19 1,400 1,577 05-PWR8, A2 07-C30, A5 ------- 4.484%, 6/11/41 135 126 5.342%, 12/15/43 400 249 PENNSYLVANIA--2.5% Citigroup Mortgage Loan 07-C33, A4 City of Pittsburgh Trust, Inc. 05-5, 2A3 5.903%, 2/15/49(3) 575 353 Pension Obligation 5.000%, 8/25/35 523 438 Wells Fargo Mortgage Taxable Series C Citigroup/Deutsche Bank Backed Securities Trust (FGIC Insured) Commercial Mortgage Trust 04-EE, 2A3 6.500%, 3/1/17 4,250 4,235 05-CD1, AM 4.161%, 12/25/34(3) 674 374 ------- 5.226%, 7/15/44(3) 600 299 05-AR4, 2A2 VIRGINIA--0.1% 06-CD2, A4 4.537%, 4/25/35(3) 217 161 Tobacco Settlement 5.363%, 1/15/46(3) 1,420 1,094 05-AR4, 2A1 Financing Corp. Taxable Credit Suisse Mortgage 4.537%, 4/25/35(3) 1,083 792 Series A-1, Capital Certificates ------- 6.706%, 6/1/46 355 175 06-C1, A4 20,154 ------------------------------------------ 5.552%, 2/15/39 (3) 2,050 1,662 ------------------------------------------ TOTAL MUNICIPAL BONDS Crown Castle Towers LLC TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $8,486) 8,427 05-1A, AFX 144A (IDENTIFIED COST $44,165) 38,872 ------------------------------------------ 4.643%, 6/15/35 (2) 915 874 ------------------------------------------ MORTGAGE-BACKED SECURITIES--23.3% First Horizon Asset Securities, Inc. ASSET-BACKED SECURITIES--2.5% AGENCY--11.2% 05-AR1, 2A1 Associates Manufactured FHLMC R010-AB 4.999%, 4/25/35 (3) 702 475 Housing 5.500%, 12/15/19 260 265 GE Capital Commercial Pass-Through-Certificate FNMA Mortgage Corp. 03-C1,C 97-2, A6 5.000%, 6/1/18 1,065 1,113 4.975%, 1/10/38 (3) 245 201 7.075%, 3/15/28 (3) 246 240 4.000%, 7/1/19 528 540 GMAC Commercial Mortgage Bayview Financial 5.000%, 8/1/20 297 309 Securities, Inc. 03-C2, Acquisition Trust 06-A, 6.000%, 11/1/31 260 273 A2 1A2 5.000%, 4/1/34 1,684 1,742 5.486%, 5/10/40 (3) 215 208 5.483%, 2/28/41 (3) 488 383 5.500%, 7/1/34 1,721 1,792 Greenwich Capital Bombardier Capital 5.000%, 3/1/36 171 177 Commercial Funding Corp. Mortgage Securitization 5.500%, 5/1/36 168 174 04-GG1, A7 Corp. 99-A, A3 5.500%, 4/1/37 312 324 5.317%, 6/10/36 (3) 4,100 3,506 5.980%, 1/15/18 (3) 477 284 6.000%, 9/1/37 552 578 GS Mortgage Securities Capital One Auto Finance 6.000%, 2/1/38 487 510 Corp. II Trust 07-B, A3A TBA 4.000%, 4/15/39(7) 650 654 05-GG4, AJ 5.030%, 4/15/12 672 660 TBA 4.500%, 4/15/39(7) 2,000 2,043 4.782%, 7/10/39 950 412 Carmax Auto Owner Trust TBA 5.000%, 4/15/39(7) 1,400 1,444 07-GG10, A4 05-2, A4 4.340%, 9/15/10 159 159 TBA 5.500%, 4/15/39(7) 2,725 2,828 5.799%, 8/10/45(3) 600 409 07-2, A3 5.230%, TBA 6.000%, 4/15/39(7) 2,575 2,689 JPMorgan Chase Commercial 12/15/11 754 763 Mortgage Securities Dunkin Securitization Corp. 01-CIBC, A3 06-1, M1 144A 6.260%, 3/15/33 1,003 1,015 8.285%, 6/20/31 (2) 375 246 07-LD12, A4 GMAC Mortgage Corp. 5.882%, 2/15/51(3) 575 406 Loan Trust 05-HE2, A3 4.622%, 11/25/35 (3) 137 128
See Notes to Financial Statements 31 VIRTUS INCOME & GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands)
PAR PAR PAR VALUE VALUE VALUE VALUE VALUE VALUE -------- ------- -------- ------- -------- ------- ASSET-BACKED SECURITIES--CONTINUED CONSUMER STAPLES--CONTINUED FINANCIALS--CONTINUED JPMorgan Mortgage Tate & Lyle International CME Group, Inc. Acquisition Corp. Finance plc 144A 5.400%, 8/1/13 $ 125 $ 127 06-CW2, AF3 6.625%, 6/15/16 (2) $ 325 $ 286 Credit Suisse New York 5.777%, 8/25/36(3) $ 605 $ 322 ------- 5.000%, 5/15/13 330 319 06-CW2, AF4 858 Deutsche Bank AG 6.080%, 8/25/36(3) 689 259 ------- 4.875%, 5/20/13 110 108 Renaissance Home Equity ENERGY--2.3% Ford Motor Credit Co. LLC Loan Trust 06-1, AF2 Buckeye Partners LP 5.544%, 4/15/09(3) 65 64 5.533%, 5/25/36 (3) 44 44 6.050%, 1/15/18 75 65 8.625%, 11/1/10 190 151 Residential Funding Chesapeake Energy Corp. 9.875%, 8/10/11 300 227 Mortgage Securities II, 6.875%, 11/15/20 325 256 7.800%, 6/1/12 255 173 Inc. 04-HI3, A4 Denbury Resources, Inc. General Electric Capital 4.630%, 1/25/20 43 42 7.500%, 12/15/15 340 297 Corp. 06-HSA1, A3 EnCana Corp. 5.375%, 10/20/16(5) 800 703 5.230%, 2/25/36(3) 810 252 5.900%, 12/1/17 195 184 GMAC LLC Wachovia Auto Loan Owner Helix Energy Solutions 144A 6.875%, 9/15/11(2) 237 168 Trust 06-2A, A3 144A Group, Inc. 144A 144A 6.750%, 12/1/14(2) 73 42 5.230%, 8/22/11 (2) 269 270 9.500%, 1/15/16 (2) 60 36 Goldman Sachs Group, Inc. ------------------------------------------ Kinder Morgan Finance Co. (The) TOTAL ASSET-BACKED SECURITIES 5.700%, 1/5/16 930 786 5.950%, 1/18/18 280 254 (IDENTIFIED COST $5,765) 4,052 Marathon Oil Corp. 6.150%, 4/1/18 225 206 ------------------------------------------ 7.500%, 2/15/19 90 91 HBOS plc 144A CORPORATE BONDS+--18.3% NGPL PipeCo. LLC 144A 5.375%, 11/1/15 (2)(3) 750 377 6.514%, 12/15/12 (2) 325 310 HRPT Properties Trust CONSUMER DISCRETIONARY--1.4% Petro-Canada 5.750%, 11/1/15 325 206 Best Buy Co., Inc. 6.050%, 5/15/18 120 103 International Lease 6.750%, 7/15/13 180 171 PetroHawk Energy Corp. Finance Corp. Brunswick Corp. 144A 4.750%, 1/13/12 375 219 11.750%, 8/15/13 200 132 10.500%, 8/1/14 (2) 125 125 Janus Capital Group, Inc. Comcast Corp. Petropower I Funding 6.500%, 6/15/12 185 117 5.300%, 1/15/14 250 243 Trust 144A JPMorgan Chase & Co. COX Communications, Inc. 7.360%, 2/15/14 (2) 919 818 5.250%, 5/1/15(5) 350 313 144A Plains Exploration & Series 1, 6.250%, 6/1/18 (2) 300 267 Production Co. 7.900%, 12/31/49 214 138 Daimler Finance North 7.750%, 6/15/15 150 130 Merrill Lynch & Co., Inc. America LLC Smith International, Inc. 6.110%, 1/29/37 415 206 6.500%, 11/15/13 155 140 9.750%, 3/15/19 175 183 National Capital Trust II Hasbro, Inc. Swift Energy Co. 144A 6.300%, 9/15/17 275 252 7.125%, 6/1/17 325 190 5.486%, 12/29/49 (2)(3) MGM MIRAGE TEPPCO Partners LP (5) 1,000 450 8.500%, 9/15/10 15 6 7.625%, 2/15/12 150 148 National City Bank Mohawk Industries, Inc. Weatherford International 1.352%, 6/29/09(3) 265 264 6.625%, 1/15/16 350 258 Ltd. Northern Trust Co. (The) Reed Elsevier Capital, 9.625%, 3/1/19 78 81 6.500%, 8/15/18 250 263 Inc. ------- Petroplus Finance Ltd. 8.625%, 1/15/19 105 108 3,803 144A Royal Caribbean Cruises ------- 6.750%, 5/1/14 (2) 185 138 Ltd. FINANCIALS--7.3% ProLogis 6.625%, 5/15/18 150 76 7.250%, 6/15/16 340 162 American Express Credit Rabobank Capital Seneca Gaming Corp. Corp. Series C Funding II 144A Series B 7.300%, 8/20/13 275 255 5.260%, 12/29/49 (2)(3) 500 225 7.250%, 5/1/12 260 167 Assurant, Inc. Realty Income Corp. Staples, Inc. 5.625%, 2/15/14 310 260 6.750%, 8/15/19 140 97 9.750%, 1/15/14 60 63 Bank of America Corp. SLM Corp. 1.371%, Time Warner Cable, Inc. 5.750%, 8/15/16 300 197 2/1/10(3)(5) 2,250 1,935 5.850%, 5/1/17 160 143 5.750%, 12/1/17 205 172 SunTrust Banks, Inc. Videotron/Quebec Media, 5.650%, 5/1/18 300 250 5.250%, 11/5/12(5) 370 360 Inc. Bank of New York/Mellon UFJ Finance AEC 6.375%, 12/15/15 225 205 Corp. (The) 6.750%, 7/15/13(5) 325 334 ------- 4.950%, 11/1/12(5) 370 378 Wachovia Bank NA 2,317 Bear Stearns Cos., Inc. 5.000%, 8/15/15 250 213 ------- (The) Wachovia Corp. CONSUMER STAPLES--0.5% 7.250%, 2/1/18(5) 330 341 4.875%, 2/15/14(5) 435 365 BAT International Finance BlackRock, Inc. Westfield Capital Corp. plc 144A 6.250%, 9/15/17(5) 375 360 Ltd./Westfield Finance 9.500%, 11/15/18 (2) 60 68 Bosphorus Financial Authority 144A Reynolds American, Inc. Services Ltd. 144A 5.125%, 11/15/14 (2)(5) 420 325 7.300%, 7/15/15(5) 550 504 3.034%, 2/15/12 (2)(3) 188 161 Zions Bancorp. Citigroup, Inc. 5.650%, 5/15/14 250 184 5.625%, 8/27/12(5) 600 437 ------- 5.000%, 9/15/14 100 66 12,224 -------
See Notes to Financial Statements 32 VIRTUS INCOME & GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands)
PAR PAR PAR VALUE VALUE VALUE VALUE VALUE VALUE ------ ------ ----- ------- -------- ------ HEALTH CARE--0.3% MATERIALS--CONTINUED CONSUMER STAPLES--0.1% Pfizer, Inc. Xstrata Canada Corp. Yankee Candle Co., Inc. 5.350%, 3/15/15 $ 200 $ 211 5.500%, 6/15/17 $ 295 $ 203 Tranche B, Quest Diagnostics, Inc. ------- 2.830%, 2/6/14 $ 232 $ 156 6.400%, 7/1/17(5) 330 315 1,985 ------ ------ ------- 526 ENERGY--0.0% ------ TELECOMMUNICATION SERVICES--1.0% Helix Energy Solutions AT&T, Inc. Group, Inc. Tranche INDUSTRIALS--1.4% 5.625%, 6/15/16(5) 550 551 3.295%, 7/1/13 81 65 Allied Waste North America, Frontier Communication Corp. ------ Inc. 6.125%, 2/15/14 500 471 6.250%, 1/15/13 235 214 American Airlines, Inc. OJSC Vimpel Communications HEALTH CARE--0.0% 01-1, 6.977%, 5/23/21 658 335 (VIP Finance Ireland Ltd.) Health Management Continental Airlines, Inc. 144A Associates, Inc. 98-1A, 9.125%, 4/30/18 (2) 160 99 Tranche B, 6.648%, 9/15/17 422 334 Qwest Corp. 3.209%, 2/28/14 46 38 Equifax, Inc. 6.300%, 7/1/17 260 206 7.875%, 9/1/11 150 148 Masco Corp. 5.850%, 3/15/17 200 125 6.500%, 6/1/17 190 158 INFORMATION TECHNOLOGY--0.2% Owens Corning, Inc. Telecom Italia Capital SA CommScope, Inc. Tranche B, 6.500%, 12/1/16 70 51 6.999%, 6/4/18 250 226 3.386%, 12/27/14 277 239 Pitney Bowes, Inc. Verizon Communications, Inc. ------ 4.750%, 5/15/18(5) 450 423 4.900%, 9/15/15 275 263 Terex Corp. 7.375%, 1/15/14 140 122 ------- MATERIALS--0.3% United Airlines, Inc. 01-A1, 1,659 Compass Minerals 6.071%, 3/1/13 19 19 ------- International, United Rentals North Inc. Tranche B, America, Inc. UTILITIES--1.3% 2.350%, 12/22/12 199 182 6.500%, 2/15/12 260 209 AES Corp. (The) Georgia-Pacific Corp. ------ 7.750%, 10/15/15 370 325 Tranche B-1, 2,295 Allegheny Energy Supply Co. 3.236%, 12/20/12 330 293 ------ LLC 144A ------ 8.250%, 4/15/12 (2) 140 142 475 INFORMATION TECHNOLOGY--1.6% AmeriGas Partners LP ------ Broadridge Financial 7.250%, 5/20/15 500 472 Solutions, Inc. Duke Energy Corp. TELECOMMUNICATION SERVICES--0.0% 6.125%, 6/1/17 325 273 6.300%, 2/1/14 39 40 Level 3 Communications, Convergys Corp. Electricite de France 144A Inc. Tranche 4.875%, 12/15/09(5) 750 718 6.500%, 1/26/19 (2) 103 106 2.807%, 3/13/14 23 18 Intuit, Inc. Great River Energy 144A ------ 5.750%, 3/15/17 80 70 5.829%, 7/1/17 (2) 284 293 Jabil Circuit, Inc. Midwest Generation LLC UTILITIES--0.1% 8.250%, 3/15/18 220 165 Series B 8.560%, 1/2/16 117 108 NRG Energy, Inc. Mettler-Toledo Northeast Utilities Tranche B, International, Inc. 5.650%, 6/1/13 265 251 2.460%, 2/1/13 107 97 4.850%, 11/15/10(5) 1,000 987 United Energy Distribution Letter of Credit Tyco Electronic Group SA Holdings Property Ltd. 144A 2.959%, 2/1/13 57 52 6.000%, 10/1/12 125 107 5.450%, 4/15/16 (2)(5) 500 462 Texas Competitive Electric Xerox Corp. 6.750%, ------- Holdings Co. LLC 2/1/17(5) 385 294 2,199 Tranche B-2, ------ ------------------------------------------ 4.585%, 10/10/14 89 59 2,614 TOTAL CORPORATE BONDS ------ ------ (IDENTIFIED COST $36,563) 30,480 208 ------------------------------------------ ------------------------------------------ MATERIALS--1.2% TOTAL LOAN AGREEMENTS Agrium, Inc. 6.750%, 1/15/19 250 233 LOAN AGREEMENTS+(3)--1.0% (IDENTIFIED COST $2,181) 1,716 ArcelorMittal 6.125%, 6/1/18 250 180 ------------------------------------------ Barrick Gold Corp. CONSUMER DISCRETIONARY--0.3% 6.950%, 4/1/19 80 80 Charter Communications SHARES Catalyst Paper Corp. Operating -------- 7.375%, 3/1/14 210 76 LLC Tranche B, CRH America, Inc. 3.257%, 3/6/14 321 262 PREFERRED STOCK+--0.0% 6.000%, 9/30/16 310 219 Ford Motor Co. Tranche B, 8.125%, 7/15/18 200 156 5.000%, 12/16/13 368 178 FINANCIALS--0.0% Nova Chemicals Corp. Lamar Media Corp. Tranche F, Preferred Blocker, Inc. 5.720%, 11/15/13(3) 235 177 2.000%, 3/31/14 45 42 (GMAC) Pfd. Rio Tinto Finance USA Ltd. MCC Georgia LLC Tranche E, 7.000% 68 14 6.500%, 7/15/18(5) 450 394 6.500%, 1/3/16 38 35 ------------------------------------------ Verso Paper Holdings ------- TOTAL PREFERRED STOCK LLC/Verso Paper, Inc. 517 (IDENTIFIED COST $21) 14 Series B ------- ------------------------------------------ 4.920%, 8/1/14 (3) 107 32 Vulcan Materials Co. COMMON STOCKS+--47.5% 5.600%, 11/30/12 245 235 CONSUMER DISCRETIONARY--3.2% McDonald's Corp. 33,100 1,806 NIKE Class B 40,000 1,876 Under Armour, Inc. Class A(4) 103,700 1,704 ------ 5,386 ------
See Notes to Financial Statements 33 VIRTUS INCOME & GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- -------- --------- -------- CONSUMER STAPLES--5.5% INFORMATION TECHNOLOGY--8.1% SHORT-TERM INVESTMENTS--5.2% Altria Group, Inc. 109,000 $ 1,746 Cisco Systems, Inc.(4) 111,300 $ 1,867 MONEY MARKET MUTUAL FUNDS--5.2% Bunge Ltd. 32,900 1,864 Corning, Inc. 146,900 1,949 State Street Institutional Costco Wholesale Corp. 41,300 1,913 Hewlett-Packard Co. 63,300 2,029 Liquid Reserves Fund PepsiCo, Inc. 37,100 1,910 International Business (seven-day effective Philip Morris Machines Corp. 19,900 1,928 yield 0.577%) 8,739,177 $ 8,739 International, Inc. 47,900 1,704 Microsoft Corp. 108,300 1,990 ---------------------------------------- ------- Nokia Oyj Sponsored ADR 155,100 1,810 TOTAL SHORT-TERM INVESTMENTS 9,137 QUALCOMM, Inc. 48,400 1,883 (IDENTIFIED COST $8,739) 8,739 ------- -------- ---------------------------------------- 13,456 ENERGY--6.7% -------- TOTAL INVESTMENTS--104.0% Chesapeake Energy Corp. 47,600 812 (IDENTIFIED COST $187,092) 173,256(1) ConocoPhillips 47,900 1,876 MATERIALS--4.0% Halliburton Co. 105,500 1,632 Alcoa, Inc. 152,300 1,118 Other assets and Massey Energy Co. 77,800 787 Freeport-McMoRan liabilities, net--(4.0)% (6,653) Occidental Petroleum Copper & Gold, Inc. 44,000 1,677 -------- Corp. 30,000 1,670 Nucor Corp. 51,700 1,973 NET ASSETS--100.0% $166,603 Petroleo Brasileiro SA Potash Corp. of ======== ADR 59,200 1,804 Saskatchewan, Inc. 23,700 1,915 St. Mary Land & -------- + Security classifications are based on Exploration Co. 63,000 833 6,683 sectors. Valero Energy Corp. 99,200 1,776 -------- ------- 11,190 TELECOMMUNICATION ------- SERVICES--2.2% COUNTRY WEIGHTINGS as of 3/31/09* AT&T, Inc. 71,400 1,799 --------------------------------------------- FINANCIALS--5.4% Verizon Communications, United States 93% Allstate Corp. (The) 93,400 1,788 Inc. 59,700 1,803 Australia 1 Goldman Sachs Group, -------- Brazil 1 Inc. (The) 17,400 1,845 3,602 Canada 1 Hudson City Bancorp, ------------------------------------------- Finland 1 Inc. 152,800 1,786 TOTAL COMMON STOCKS Switzerland 1 Reinsurance Group of (IDENTIFIED COST $79,311) 79,127 United Kingdom 1 America, Inc. 61,000 1,976 ------------------------------------------- Other 1 Wells Fargo & Co. 106,600 1,518 --------------------------------------------- ------- EXCHANGE TRADED FUNDS--1.1% * FOREIGN SECURITY COUNTRY DETERMINATION: 8,913 PowerShares Deutsche A combination of the following criteria is ------- Bank Agriculture Fund(4) 74,700 1,829 used to assign the countries of risk listed ------------------------------------------- in the table shown above: country of HEALTH CARE--6.5% TOTAL EXCHANGE TRADED FUNDS incorporation, actual building address, Celgene Corp.(4) 38,900 1,727 (IDENTIFIED COST $1,861) 1,829 primary exchange on which security is Gilead Sciences, Inc.(4) 40,600 1,880 ------------------------------------------- traded and country in which the greatest Johnson & Johnson 36,200 1,904 TOTAL LONG TERM INVESTMENTS--98.8% percentage of company revenue is generated. Merck & Co., Inc. 68,100 1,822 (IDENTIFIED COST $178,353) 164,517 --------------------------------------------- St. Jude Medical, ------------------------------------------- Inc.(4) 49,100 1,784 UnitedHealth Group, Inc. 83,600 1,750 ------- 10,867 ------- INDUSTRIALS--5.9% Boeing Co. (The) 24,700 879 Caterpillar, Inc. 63,000 1,762 Continental Airlines, Inc. Class B(4) 202,900 1,788 Foster Wheeler AG(4) 97,100 1,696 L-3 Communications Holdings, Inc. 28,900 1,959 Union Pacific Corp. 44,000 1,809 ------- 9,893 ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2009, these securities amounted to a value of $6,928 or 4.2% of net assets. (3) Variable or step coupon security; interest rate shown reflects the rate currently in effect. (4) Non-income producing. (5) All or a portion segregated as collateral for when-issued securities. (6) Security in default. (7) When-issued security.
See Notes to Financial Statements 34 VIRTUS MID-CAP GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--98.8% HEALTH CARE--11.9% INFORMATION TECHNOLOGY--CONTINUED Silicon Laboratories, CONSUMER DISCRETIONARY--17.7% Biogen Idec, Inc.(2) 12,700 $ 666 Inc.(2) 34,500 $ 911 Advance Auto Parts, Inc. 20,300 $ 834 CIGNA Corp. 43,300 762 Sybase, Inc.(2) 38,100 1,154 Autoliv, Inc. 22,000 409 Express Scripts, Inc.(2) 8,600 397 Symantec Corp.(2) 117,500 1,755 Block (H&R), Inc. 32,200 586 Forest Laboratories, Teradata Corp.(2) 27,200 441 Darden Restaurants, Inc. 18,800 644 Inc.(2) 15,500 340 Trimble Navigation DISH Network Corp. Hill-Rom Holdings, Inc. 70,700 699 Ltd.(2) 22,500 344 Class A(2) 86,500 961 Humana, Inc.(2) 7,490 195 Western Digital Corp.(2) 45,600 882 Gap, Inc. (The) 80,600 1,047 LifePoint Hospitals, ------- Hasbro, Inc. 25,400 637 Inc.(2) 13,700 286 12,591 International Speedway Omnicare, Inc. 19,400 475 ------- Corp. Class A 12,700 280 Quest Diagnostics, Inc. 6,600 313 Johnson Controls, Inc. 25,500 306 Universal Health MATERIALS--5.8% Liberty Global, Inc. Services, Inc. Celanese Corp. Series A 27,100 362 Class A(2) 51,800 754 Class B 41,800 1,603 Cliffs Natural Limited Brands, Inc. 44,700 389 Valeant Pharmaceuticals Resources, Inc. 21,800 396 Penn National Gaming, International(2) 30,800 548 Crown Holdings, Inc.(2) 51,300 1,166 Inc.(2) 12,800 309 Watson Pharmaceuticals, Owens-Illinois, Inc.(2) 30,700 443 Polo Ralph Lauren Corp. 15,230 643 Inc.(2) 31,700 986 Scotts Miracle-Gro Co. Ross Stores, Inc. 30,400 1,091 ------- (The) Class A 20,500 711 TJX Cos., Inc. (The) 77,260 1,981 7,270 Terra Industries, Inc. 17,600 495 ------- ------- ------- 10,871 3,573 ------- INDUSTRIALS--17.7% ------- Alliant Techsystems, CONSUMER STAPLES--7.4% Inc.(2) 3,690 247 TELECOMMUNICATION SERVICES--2.1% Dean Foods Co.(2) 42,200 763 Cooper Industries Ltd. 25,700 665 Telephone & Data Kroger Co. (The) 68,800 1,460 CSX Corp. 30,000 776 Systems, Inc. 48,700 1,291 Pepsi Bottling Group, Dover Corp. 41,900 1,105 ------- Inc. (The) 105,400 2,334 Flowserve Corp. 7,000 393 ------- Fluor Corp. 10,200 352 UTILITIES--1.7% 4,557 Goodrich Corp. 34,600 1,311 Energen Corp. 17,800 518 ------- Harsco Corp. 70,520 1,563 NRG Energy, Inc.(2) 29,200 514 Hunt (J.B.) Transport ------- ENERGY--8.4% Services, Inc. 38,300 923 1,032 Alpha Natural Resources, ITT Corp. 14,800 569 ---------------------------------------- Inc.(2) 23,300 413 Manpower, Inc. 14,700 464 TOTAL COMMON STOCKS Comstock Resources, Northrop Grumman Corp. 14,400 628 (IDENTIFIED COST $82,407) 60,545 Inc.(2) 19,600 584 Parker Hannifin Corp. 8,000 272 ---------------------------------------- Dresser-Rand Group, Ryder System, Inc. 13,300 377 TOTAL LONG TERM INVESTMENTS--98.8% Inc.(2) 31,000 685 Thomas & Betts Corp.(2) 15,400 385 (IDENTIFIED COST $82,407) 60,545 Encore Acquisition WESCO International, ---------------------------------------- Co.(2) 39,500 919 Inc.(2) 44,400 805 SHORT-TERM INVESTMENTS--1.0% ENSCO International, ------- MONEY MARKET MUTUAL FUNDS--1.0% Inc. 9,000 238 10,835 State Street Institutional Murphy Oil Corp. 16,900 757 ------- Liquid Reserves Fund Newfield Exploration (seven-day effective Co.(2) 12,970 294 INFORMATION TECHNOLOGY--20.6% yield 0.577%) 618,138 618 Patterson-UTI Energy, Activision Blizzard, ---------------------------------------- Inc. 25,100 225 Inc.(2) 37,800 395 TOTAL SHORT-TERM INVESTMENTS Superior Energy Affiliated Computer (IDENTIFIED COST $618) 618 Services, Inc.(2) 28,700 370 Services, Inc.(2) 34,400 1,647 ---------------------------------------- Tidewater, Inc. 18,200 676 Analog Devices, Inc. 16,300 314 TOTAL INVESTMENTS--99.8% ------- Autodesk, Inc.(2) 11,570 195 (IDENTIFIED COST $83,025) 61,163(1) 5,161 Broadcom Corp.(2) 18,800 376 Other assets and ------- Compuware Corp.(2) 60,900 401 liabilities, net--0.2% 139 Fidelity National ------- FINANCIALS--5.5% Information Services, NET ASSETS--100.0% $61,302 Arch Capital Group Inc. 27,900 508 ======= Ltd.(2) 14,300 770 Harris Corp. 29,700 860 Aspen Insurance Holdings LG Display Co. Ltd. + Security classifications are based on Ltd. 33,800 759 ADR(2) 59,600 609 sectors. Lazard Ltd. Class A 10,800 318 NCR Corp.(2) 26,400 210 Northern Trust Corp. 13,100 784 Novellus Systems, TD Ameritrade Holding Inc.(2) 23,800 396 Corp.(2) 53,100 733 QLogic Corp.(2) 48,400 538 ------- Red Hat, Inc.(2) 36,700 655 3,364 ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 35 VIRTUS QUALITY SMALL-CAP FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--97.6% HEALTH CARE--11.0% EXCHANGE TRADED FUNDS--0.9% Landauer, Inc. 55,900 $ 2,833 iShares Russell 2000 CONSUMER DISCRETIONARY--9.1% Owens & Minor, Inc. 82,100 2,720 Value Index Fund 13,800 $ 545 Cherokee, Inc. 75,900 $ 1,184 Young Innovations, Inc. 56,900 882 ---------------------------------------- Matthews International ------- TOTAL EXCHANGE TRADED FUNDS Corp. Class A 81,600 2,351 6,435 (IDENTIFIED COST $573) 545 Tempur-Pedic ------- ---------------------------------------- International, Inc. 238,800 1,743 TOTAL LONG TERM INVESTMENTS--98.5% ------- INDUSTRIALS--30.4% (IDENTIFIED COST $79,944) 57,441 5,278 ABM Industries, Inc. 243,900 4,000 ---------------------------------------- ------- CLARCOR, Inc. 90,100 2,270 Graco, Inc. 68,500 1,169 SHORT-TERM INVESTMENTS--1.3% CONSUMER STAPLES--9.2% Landstar System, Inc. 91,100 3,049 Chattem, Inc.(2) 50,900 2,853 Lincoln Electric MONEY MARKET MUTUAL FUNDS--1.3% WD-40 Co. 103,500 2,498 Holdings, Inc. 72,400 2,294 State Street Institutional ------- McGrath RentCorp 147,100 2,318 Liquid Reserves Fund 5,351 Roper Industries, Inc. 61,800 2,624 (seven-day effective ------- ------- yield 0.577%) 739,205 739 17,724 ---------------------------------------- ENERGY--9.0% ------- TOTAL SHORT-TERM INVESTMENTS CARBO Ceramics, Inc. 66,900 1,903 (IDENTIFIED COST $739) 739 World Fuel Services Corp.105,000 3,321 INFORMATION TECHNOLOGY--9.0% ---------------------------------------- ------- Cass Information 5,224 Systems, Inc. 28,800 934 TOTAL INVESTMENTS--99.8% ------- Computer Services, Inc. 52,100 1,341 (IDENTIFIED COST $80,683) 58,180(1) Syntel, Inc. 144,100 2,966 Other assets and FINANCIALS--16.9% ------- liabilities, net--0.2% 107 Ares Capital Corp. 377,066 1,825 5,241 ------- Cathay General Bancorp 141,300 1,474 ------- NET ASSETS--100.0% $58,287 Entertainment Properties ======= Trust 123,300 1,943 MATERIALS--3.0% Federated Investors, Inc.122,300 2,722 Balchem Corp. 70,100 1,762 + Security classifications are based on Financial Federal Corp. 90,500 1,917 ---------------------------------------- sectors. ------- TOTAL COMMON STOCKS 9,881 (IDENTIFIED COST $79,371) 56,896 ------- ---------------------------------------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 36 VIRTUS SMALL-CAP CORE FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--99.9% HEALTH CARE--16.6% MATERIALS--4.8% Abaxis, Inc.(2) 56,000 $ 965 AptarGroup, Inc. 49,500 $ 1,542 CONSUMER DISCRETIONARY--9.8% Computer Programs & ---------------------------------------- Pool Corp. 84,600 $ 1,134 Systems, Inc. 36,500 1,214 TOTAL COMMON STOCKS Steiner Leisure Ltd.(2) 44,100 1,076 Haemonetics Corp.(2) 29,100 1,603 (IDENTIFIED COST $36,726) 31,926 Tempur-Pedic Techne Corp. 27,600 1,510 ---------------------------------------- International, Inc. 127,700 932 ------- TOTAL LONG TERM INVESTMENTS--99.9% ------- 5,292 (IDENTIFIED COST $36,726) 31,926 3,142 ------- ---------------------------------------- ------- INDUSTRIALS--24.0% ABM Industries, Inc. 73,600 1,207 SHORT-TERM INVESTMENTS--0.4% CONSUMER STAPLES--3.8% Forward Air Corp. 67,000 1,087 Chattem, Inc.(2) 21,600 1,211 HEICO Corp. Class A 45,000 928 MONEY MARKET MUTUAL FUNDS--0.4% ------- Lincoln Electric State Street Institutional Holdings, Inc. 40,000 1,268 Liquid Reserves Fund ENERGY--5.2% RBC Bearings, Inc.(2) 61,800 944 (seven-day effective CARBO Ceramics, Inc. 32,800 933 Rollins, Inc. 36,900 633 yield 0.577%) 134,158 134 Petroleum Development Roper Industries, Inc. 37,500 1,592 ---------------------------------------- Corp.(2) 61,800 730 ------- TOTAL SHORT-TERM INVESTMENTS ------- 7,659 (IDENTIFIED COST $134) 134 1,663 ------- ---------------------------------------- ------- INFORMATION TECHNOLOGY--23.8% TOTAL INVESTMENTS--100.3% ANSYS, Inc.(2) 64,250 1,613 (IDENTIFIED COST $36,860) 32,060(1) FINANCIALS--11.9% Blackbaud, Inc. 115,372 1,339 Other assets and Cohen & Steers, Inc. 71,200 794 FactSet Research liabilities, net--(0.3)% (92) Entertainment Properties Systems, Inc. 38,500 1,925 ------- Trust 40,600 640 Jack Henry & NET ASSETS--100.0% $31,968 Federated Investors, Inc. 52,200 1,162 Associates, Inc. 81,615 1,332 ======= Financial Federal Corp. 57,550 1,219 ScanSource, Inc.(2) 75,000 1,393 ------- ------- + Security classifications are based on 3,815 7,602 sectors. ------- ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 37 VIRTUS SMALL-CAP GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--93.2% INDUSTRIALS--13.8% UTILITIES--0.6% Aceto Corp. 20,900 $ 125 Ormat Technologies, Inc. 10,000 $ 275 CONSUMER DISCRETIONARY-- Aegean Marine Petroleum ---------------------------------------- 13.1% Network, Inc. 45,000 754 TOTAL COMMON STOCKS American Eagle American Superconductor (IDENTIFIED COST Outfitters, Inc. 38,600 $ 472 Corp.(2) 64,351 1,114 $53,969) 44,800 Burger King Holdings, Beacon Roofing Supply, ---------------------------------------- Inc. 41,300 948 Inc.(2) 72,100 965 Children's Place Retail Bucyrus International, EXCHANGE TRADED Stores, Inc. (The)(2) 40,700 891 Inc. 33,100 502 FUNDS--4.8% DreamWorks Animation Harsco Corp. 21,100 468 Energy Select Sector SKG, Inc. Class A(2) 43,200 935 II-VI, Inc.(2) 34,984 601 SPDR Fund 26,300 1,117 Guess?, Inc. 41,700 879 Landstar System, Inc. 11,100 371 iShares Nasdaq Jack in the Box, Inc.(2) 50,200 1,169 Perini Corp.(2) 45,100 555 Biotechnology Index Lincoln Educational Resources Connection, Fund 17,700 1,174 Services Corp.(2) 26,700 489 Inc.(2) 38,800 585 ---------------------------------------- LKQ Corp.(2) 36,083 515 Yingli Green Energy TOTAL EXCHANGE TRADED ------- Holding Co. Ltd.(2) 100,600 606 FUNDS 6,298 ------- (IDENTIFIED COST $2,499) 2,291 ------- 6,646 ---------------------------------------- ------- TOTAL LONG TERM CONSUMER STAPLES--2.5% INVESTMENTS--98.0% Alberto-Culver Co. 18,800 425 INFORMATION (IDENTIFIED COST Ralcorp Holdings, TECHNOLOGY--28.4% $56,468) 47,091 Inc.(2) 14,800 797 Blackboard, Inc.(2) 22,500 714 ---------------------------------------- ------- CACI International, Inc. 1,222 Class A(2) 11,400 416 SHORT-TERM ------- Cavium Networks, Inc.(2) 40,600 469 INVESTMENTS--0.2% CommScope, Inc.(2) 42,300 481 ENERGY--4.0% Constant Contact, MONEY MARKET MUTUAL Barrett Corp. (Bill)(2) 44,300 985 Inc.(2) 64,100 897 FUNDS--0.2% Dril-Quip, Inc.(2) 30,200 927 Cybersource Corp.(2) 78,900 1,168 State Street ------- DG FastChannel, Inc.(2) 60,300 1,132 Institutional 1,912 FormFactor, Inc.(2) 26,400 476 Liquid Reserves Fund ------- Macrovision Solutions (seven-day effective Corp.(2) 57,100 1,016 yield 0.577%) 116,638 117 FINANCIALS--4.8% Microsemi Corp.(2) 73,000 847 ---------------------------------------- Knight Capital Group, Netezza Corp.(2) 100,997 687 TOTAL SHORT-TERM Inc. Class A(2) 51,100 753 Neutral Tandem, Inc.(2) 29,200 719 INVESTMENTS Lazard Ltd. Class A 32,900 968 Nuance Communications, (IDENTIFIED COST $117) 117 MF Global Ltd.(2) 135,000 571 Inc.(2) 101,700 1,104 ---------------------------------------- ------- Plantronics, Inc. 38,900 469 2,292 PMC-Sierra, Inc.(2) 141,600 903 TOTAL INVESTMENTS--98.2% ------- Riverbed Technology, (IDENTIFIED COST Inc.(2) 51,900 679 $56,585) 47,208(1) HEALTH CARE--22.0% ValueClick, Inc.(2) 84,000 715 Other assets and Alexion Pharmaceuticals, Volterra Semiconductor liabilities, net--1.8% 869 Inc.(2) 26,000 979 Corp.(2) 23,854 201 ------- Auxilium Websense, Inc.(2) 45,846 550 NET ASSETS--100.0% $48,077 Pharmaceuticals, ------- ======= Inc.(2) 12,200 338 13,643 Immucor, Inc.(2) 35,800 900 ------- + Security classifications are based Luminex Corp.(2) 54,300 984 on sectors. Myriad Genetics, Inc.(2) 29,400 1,337 MATERIALS--3.0% Neogen Corp.(2) 48,648 1,062 FMC Corp. 17,300 746 Noven Pharmaceuticals, Sensient Technologies Inc.(2) 113,651 1,077 Corp. 30,290 712 NuVasive, Inc.(2) 29,823 936 ------- Perrigo Co. 42,000 1,043 1,458 Phase Forward, Inc.(2) 38,000 486 ------- Sequenom, Inc.(2) 55,600 791 Sun Healthcare Group, TELECOMMUNICATION Inc.(2) 77,000 650 SERVICES--1.0% ------- Syniverse Holdings, 10,583 Inc.(2) 29,900 471 ------- ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 38 VIRTUS SMALL-CAP SUSTAINABLE GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--98.1% INDUSTRIALS--14.9% SHORT-TERM INVESTMENTS Copart, Inc.(2) 16,550 $ 491 --1.1% CONSUMER DISCRETIONARY Forward Air Corp. 24,300 394 --9.2% HEICO Corp. Class A 17,650 364 MONEY MARKET MUTUAL Aaron Rents, Inc. 15,950 $ 425 ------- FUNDS--1.1% Strayer Education, Inc. 1,900 342 1,249 State Street ------- ------- Institutional Liquid 767 Reserves Fund ------- INFORMATION TECHNOLOGY (seven-day effective --39.4% yield 0.577%) 95,296 $ 95 CONSUMER STAPLES--4.2% ANSYS, Inc.(2) 14,250 358 ---------------------------------------- Hansen Natural Corp.(2) 9,650 348 Blackbaud, Inc. 31,500 366 TOTAL SHORT-TERM ------- Cabot Microelectronics INVESTMENTS Corp.(2) 10,250 246 (IDENTIFIED COST $95) 95 ENERGY--9.8% FactSet Research ---------------------------------------- NATCO Group, Inc. Systems, Inc. 11,350 567 Class A(2) 26,600 503 Hittite Microwave TOTAL INVESTMENTS--99.2% Petroleum Development Corp.(2) 15,500 484 (IDENTIFIED COST Corp.(2) 7,600 90 Measurement Specialties, $10,533) 8,294(1) Tesco Corp.(2) 29,000 227 Inc.(2) 12,800 52 Other assets and ------- Power Integrations, Inc. 16,250 279 liabilities, net--0.8% 66 820 Quality Systems, Inc. 12,000 543 ------- ------- ScanSource, Inc.(2) 21,400 398 NET ASSETS--100.0% $ 8,360 ------- ======= FINANCIALS--4.3% 3,293 World Acceptance ---------------------------------------- + Security classifications are based Corp.(2) 21,100 361 TOTAL COMMON STOCKS on sectors. ------- (IDENTIFIED COST $10,438) 8,199 HEALTH CARE--16.3% ---------------------------------------- Abaxis, Inc.(2) 28,900 498 TOTAL LONG TERM Meridian Bioscience, INVESTMENTS--98.1% Inc. 13,700 248 (IDENTIFIED COST National Research Corp. 9,000 224 $10,438) 8,199 Techne Corp. 7,150 391 ---------------------------------------- ------- 1,361 -------
Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing. See Notes to Financial Statements 39 VIRTUS STRATEGIC GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--98.5% INDUSTRIALS--11.0% EXCHANGE TRADED FUNDS ABB Ltd. Sponsored ADR 56,930 $ 794 --1.5% CONSUMER DISCRETIONARY Aegean Marine Petroleum Financial Select Sector --9.9% Network, Inc. 69,470 1,164 SPDR Fund 130,700 $ 1,151 Amazon.com, Inc.(2) 13,790 $ 1,013 Harsco Corp. 53,380 1,183 ---------------------------------------- American Eagle Joy Global, Inc. 52,100 1,110 TOTAL EXCHANGE TRADED Outfitters, Inc. 32,210 394 Norfolk Southern Corp. 32,510 1,097 FUNDS DreamWorks Animation Perini Corp.(2) 41,090 505 (IDENTIFIED COST $1,917) 1,151 SKG, Inc. Class A(2) 57,600 1,246 SPX Corp. 18,890 888 ---------------------------------------- Kohl's Corp.(2) 21,020 890 Stericycle, Inc.(2) 24,360 1,163 TOTAL LONG TERM LKQ Corp.(2) 55,100 786 United Technologies INVESTMENTS--100.0% Lowe's Cos., Inc. 42,050 767 Corp. 16,680 717 (IDENTIFIED COST McDonald's Corp. 20,470 1,117 ------- $92,489) 78,257 Yum! Brands, Inc. 57,050 1,568 8,621 ---------------------------------------- ------- ------- 7,781 SHORT-TERM INVESTMENTS ------- INFORMATION TECHNOLOGY --0.2% --33.9% CONSUMER STAPLES--10.7% Apple, Inc.(2) 18,960 1,993 MONEY MARKET MUTUAL Colgate-Palmolive Co. 25,610 1,511 Applied Materials, Inc. 155,790 1,675 FUNDS--0.2% CVS Caremark Corp. 43,960 1,208 Broadcom Corp.(2) 87,320 1,745 State Street General Mills, Inc. 20,560 1,026 Cisco Systems, Inc.(2) 98,450 1,651 Institutional Kroger Co. (The) 68,550 1,455 Corning, Inc. 57,010 756 Liquid Reserves Fund Philip Morris Cybersource Corp.(2) 54,100 801 (seven-day effective International, Inc. 21,130 752 EMC Corp.(2) 143,720 1,638 yield 0.577%) 153,879 154 Ralcorp Holdings, Google, Inc.(2) 5,725 1,993 ---------------------------------------- Inc.(2) 25,120 1,353 Hewlett-Packard Co. 65,180 2,090 TOTAL SHORT-TERM Safeway, Inc. 53,700 1,084 International Business INVESTMENTS ------- Machines Corp. 22,770 2,206 (IDENTIFIED COST $154) 154 8,389 Marvell Technology Group ---------------------------------------- ------- Ltd.(2) 127,650 1,169 Microsoft Corp. 90,800 1,668 TOTAL INVESTMENTS ENERGY--7.2% Nuance Communications, --100.2% Range Resources Corp. 19,140 788 Inc.(2) 80,370 873 (IDENTIFIED COST Schlumberger Ltd. 30,270 1,230 Oracle Corp. 99,900 1,805 $92,643) 78,411(1) Transocean Ltd.(2) 23,913 1,407 QUALCOMM, Inc. 42,970 1,672 Other assets and Weatherford Research In Motion liabilities, net International Ltd.(2) 105,170 1,164 Ltd.(2) 16,580 714 --(0.2)% (143) XTO Energy, Inc. 34,562 1,058 Silicon Laboratories, ------- ------- Inc.(2) 34,400 908 NET ASSETS--100.0% $78,268 5,647 Symantec Corp.(2) 78,500 1,173 ======= ------- ------- 26,530 + Security classifications are based FINANCIALS--2.9% ------- on sectors. BlackRock, Inc. 7,150 930 Goldman Sachs Group, MATERIALS--5.8% COUNTRY WEIGHTINGS as of 3/31/09* Inc. (The) 12,740 1,350 FMC Corp. 26,960 1,163 ------------------------------------------- ------- Freeport-McMoRan United States 91% 2,280 Copper & Gold, Inc. 24,090 918 Canada 2 ------- Monsanto Co. 15,140 1,258 Japan 2 Potash Corp. of Netherlands 2 HEALTH CARE--15.1% Saskatchewan, Inc. 15,110 1,221 Switzerland 2 Abbott Laboratories 22,570 1,076 ------- Greece 1 Allergan, Inc. 20,180 964 4,560 ------------------------------------------- Amgen, Inc.(2) 14,310 709 ------- * FOREIGN SECURITY COUNTRY DETERMINATION: Biogen Idec, Inc.(2) 22,360 1,172 Bristol-Myers Squibb Co. 69,560 1,525 TELECOMMUNICATION A combination of the following criteria Celgene Corp.(2) 31,690 1,407 SERVICES--2.0% is used to assign the countries of risk Cephalon, Inc.(2) 16,090 1,096 American Tower Corp. listed in the table shown above: country Genzyme Corp.(2) 17,640 1,048 Class A(2) 50,070 1,524 of incorporation, actual building Gilead Sciences, Inc.(2) 21,080 976 ---------------------------------------- address, primary exchange on which Mylan, Inc.(2) 58,000 778 TOTAL COMMON STOCKS security is traded and country in which Perrigo Co. 41,210 1,023 (IDENTIFIED COST the greatest percentage of company ------- $90,572) 77,106 revenue is generated. 11,774 ---------------------------------------- ------------------------------------------- ------- Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 40 VIRTUS VALUE OPPORTUNITIES FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE SHARES VALUE SHARES VALUE ------- ------- ------- ------- ------- ------- COMMON STOCKS+--99.2% FINANCIALS--CONTINUED INDUSTRIALS--CONTINUED Central Pacific L-3 Communications CONSUMER DISCRETIONARY Financial Corp. 18,700 $ 105 Holdings, Inc. 15,800 $ 1,071 --10.6% Cincinnati Financial North American Advance Auto Parts, Inc. 7,200 $ 296 Corp. 7,700 176 Galvanizing & Coating, Aeropostale, Inc.(2) 15,000 398 Citigroup, Inc. 64,100 162 Inc.(2) 4,699 14 Big Lots, Inc.(2) 20,800 432 Conseco, Inc.(2) 21,276 20 Northrop Grumman Corp. 16,900 738 Career Education CVB Financial Corp. 14,400 95 Tecumseh Products Co. Corp.(2) 42,800 1,026 First Financial Class A(2) 7,100 32 DISH Network Corp. Bancshare, Inc. 1,300 63 Tredegar Corp. 1,100 18 Class A(2) 13,200 147 Goldman Sachs Group, ------- Dollar Tree, Inc.(2) 5,300 236 Inc. (The) 3,500 371 2,744 Family Dollar Stores, Hartford Financial ------- Inc. 15,226 508 Services Group, Inc. Foot Locker, Inc. 20,500 215 (The) 44,500 349 INFORMATION TECHNOLOGY Horton (D.R.), Inc. 45,768 444 Iberiabank Corp 1,600 74 --7.2% HSN, Inc.(2) 36,536 188 Lincoln National Corp. 22,400 150 Acxiom Corp. 4,700 35 Liberty Global, Inc. MetLife, Inc. 10,300 235 Computer Sciences Class A(2) 32,700 476 Morgan Stanley 21,800 496 Corp.(2) 47,400 1,746 Liberty Media Corp. New York Community EarthLink, Inc.(2) 1,932 13 Capital Series A(2) 21,988 153 Bancorp, Inc. 101,800 1,137 Hewitt Associates, Inc. McDonald's Corp. 4,200 229 Northern Trust Corp. 4,677 280 Class A(2) 7,600 226 Polo Ralph Lauren Corp. 1,394 59 Pinnacle Financial IAC/InterActive Corp.(2) 5,600 85 Rent-A-Center, Inc.(2) 5,941 115 Partners, Inc.(2) 4,200 100 International Business Superior Industries PRG-Schultz Machines Corp. 9,100 882 International, Inc. 4,200 50 International, Inc.(2) 24,040 68 Metavante Technologies, Ticketmaster Principal Financial Inc.(2) 993 20 Entertainment, Inc.(2) 6,600 24 Group, Inc. 4,700 38 OpenTV Corp. Class A(2) 19,109 29 ------- Prosperity Bancshares, Sun Microsystems, 4,996 Inc. 5,600 153 Inc.(2) 49,100 359 ------- Protective Life Corp. 12,100 64 ------- Prudential Financial, 3,395 CONSUMER STAPLES--12.3% Inc. 13,100 249 ------- Altria Group, Inc. 117,706 1,886 Radian Group, Inc. 66,489 121 Archer-Daniels-Midland Rayonier, Inc. 21,800 659 MATERIALS--2.4% Co. 22,600 628 RenaissanceRe Holdings Mosaic Co. (The) 12,000 504 BJ's Wholesale Club, Ltd. 1,178 58 Scotts Miracle-Gro Co. Inc.(2) 4,900 157 Republic Bancorp, Inc. (The) Class A 3,600 125 Bunge Ltd. 13,037 739 Class A 5,344 100 Terra Nitrogen Co. LP 1,300 186 Central Garden and Pet State Street Corp. 28,000 862 United States Steel Corp. 16,000 338 Co.(2) 6,081 46 TFS Financial Corp. 18,400 223 ------- Central Garden and Pet Torchmark Corp. 20,300 532 1,153 Co. Class A(2) 9,598 72 Transatlantic Holdings, ------- Pantry, Inc. (The)(2) 7,600 134 Inc. 1,500 54 Parlux Fragrances, Unum Group 13,600 170 TELECOMMUNICATION Inc.(2) 35,358 30 Wells Fargo & Co. 41,600 592 SERVICES--3.8% Procter & Gamble Co. ------- AT&T, Inc. 32,400 816 (The) 23,900 1,125 8,870 CenturyTel, Inc. 13,800 388 Safeway, Inc. 11,563 233 ------- Sprint Nextel Corp.(2) 139,200 497 Wal-Mart Stores, Inc. 15,000 782 United States Cellular ------- HEALTH CARE--19.1% Corp.(2) 800 27 5,832 Bristol-Myers Squibb Co. 24,600 539 USA Mobility, Inc. 5,148 47 ------- Cantel Medical Corp.(2) 5,079 65 ------- CIGNA Corp. 69,400 1,221 1,775 ENERGY--16.4% Coventry Health Care, ------- Chevron Corp. 26,900 1,809 Inc.(2) 700 9 ConocoPhillips 45,400 1,778 Johnson & Johnson 41,765 2,197 UTILITIES--2.9% Exxon Mobil Corp. 52,560 3,579 Matrixx Initiatives, CH Energy Group, Inc. 600 28 Valero Energy Corp. 33,500 600 Inc.(2) 400 7 DTE Energy Co. 400 11 ------- Omnicare, Inc. 20,800 509 FirstEnergy Corp. 12,181 470 7,766 Pfizer, Inc. 231,700 3,156 NSTAR 18,200 580 ------- Teleflex, Inc. 600 23 OGE Energy Corp. 5,200 124 Watson Pharmaceuticals, UGI Corp. 7,400 175 FINANCIALS--18.7% Inc.(2) 26,000 809 ------- Allied World Assurance WellPoint, Inc.(2) 12,800 486 1,388 Co. Holdings Ltd. 4,551 173 ------- ---------------------------------------- American Equity 9,021 TOTAL COMMON STOCKS Investment Life Holding ------- (IDENTIFIED COST Co. 7,000 29 $52,922) 46,940 Annaly Capital INDUSTRIALS--5.8% ---------------------------------------- Management, Inc. 10,000 139 (Michael) Baker Corp.(2) 2,697 70 TOTAL LONG TERM Assurant, Inc. 1,700 37 Armstrong World INVESTMENTS--99.2% Bank of Hawaii Corp. 5,314 175 Industries, Inc.(2) 3,600 40 (IDENTIFIED COST Blackstone Group LP/The 24,500 178 Chart Industries, Inc.(2) 735 6 $52,922) 46,940 Broadridge Financial General Electric Co. 74,700 755 ---------------------------------------- Solutions, Inc. 20,600 383
See Notes to Financial Statements 41 VIRTUS VALUE OPPORTUNITIES FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands)
SHARES VALUE ------- ------- SHORT-TERM INVESTMENTS --0.7% MONEY MARKET MUTUAL FUNDS--0.7% State Street Institutional Liquid Reserves Fund (seven-day effective yield 0.577%) 338,064 $ 338 ---------------------------------------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $338) 338 ---------------------------------------- TOTAL INVESTMENTS--99.9% (IDENTIFIED COST $53,260) 47,278(1) Other assets and liabilities, net--0.1% 60 ------- NET ASSETS--100.0% $47,338 ======= + Security classifications are based on sectors. Security abbreviation definitions are located in the glossary starting on page 2. FOOTNOTE LEGEND (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing.
See Notes to Financial Statements 42 THIS PAGE INTENTIONALLY BLANK. VIRTUS EQUITY TRUST STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 2009 (Amounts reported in thousands except shares and per share amounts)
----------- ---------- ------------- ----------- ----------- GROWTH & GROWTH INCOME & ALL-CAP INCOME OPPORTUNITIES GROWTH MID-CAP GROWTH FUND FUND FUND FUND GROWTH FUND ----------- ---------- ------------- ----------- ----------- ASSETS Investment in securities at value(1) .............. $ 46,615 $ 127,176 $ 18,541 $ 173,256 $ 61,163 Cash .............................................. -- -- -- 18 -- Receivables Investment securities sold ..................... -- -- 96 2,361 6,219 Fund shares sold ............................... 2 33 --(2) 15 8 Dividends and interest ......................... 36 288 8 997 39 Prepaid expenses .................................. 16 22 10 18 28 ---------- ---------- ---------- ----------- ---------- Total assets .......................... 46,669 127,519 18,655 176,665 67,457 ---------- ---------- ---------- ----------- ---------- LIABILITIES Payables Fund shares repurchased ........................ 21 383 102 134 21 Investment securities purchased ................ 645 -- 136 9,647 6,008 Investment advisory fees ....................... 33 46 4 97 26 Distribution and service fees .................. 13 43 4 37 16 Administration fees ............................ 3 10 1 12 4 Transfer agent fees and expenses ............... 22 61 5 48 35 Trustees' fees and expenses .................... 1 2 --(2) 3 1 Professional fees .............................. 26 28 26 31 28 Other accrued expenses ......................... 27 38 9 53 16 ---------- ---------- ---------- ----------- ---------- Total liabilities ..................... 791 611 287 10,062 6,155 ---------- ---------- ---------- ----------- ---------- NET ASSETS ........................................ $ 45,878 $ 126,908 $ 18,368 $ 166,603 $ 61,302 ========== ========== ========== =========== ========== NET ASSETS CONSIST OF: Capital paid in on shares of beneficial interest .................................... $ 69,733 $ 210,028 $ 49,028 $ 213,866 $ 148,781 Accumulated undistributed net investment income (loss) ...................................... -- 1,126 -- 486 -- Accumulated undistributed net realized gain (loss) ...................................... (12,304) (85,335) (29,471) (33,913) (65,617) Net unrealized appreciation (depreciation) on investments ................................. (11,551) 1,089 (1,189) (13,836) (21,862) ---------- ---------- ---------- ----------- ---------- NET ASSETS ........................................ $ 45,878 $ 126,908 $ 18,368 $ 166,603 $ 61,302 ========== ========== ========== =========== ========== CLASS A: Net asset value per share (Net assets/shares outstanding) ................................... $ 7.66 $ 10.15 $ 8.03 $ 6.33 $ 8.83 ---------- ---------- ---------- ----------- ---------- Maximum offering price per share NAV/(1-5.75%) .... $ 8.13 $ 10.77 $ 8.52 $ 6.72 $ 9.37 ---------- ---------- ---------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ................. 5,286,365 8,592,869 2,173,850 25,848,492 6,142,984 ---------- ---------- ---------- ----------- ---------- Net Assets ........................................ $ 40,505 $ 87,198 $ 17,455 $ 163,586 $ 54,233 ---------- ---------- ---------- ----------- ---------- CLASS B: Net asset value (Net assets/shares outstanding) and offering price per share ....................... $ 6.12 $ 9.73 -- $ 6.39 $ 7.75 ---------- ---------- ---------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ................. 251,321 634,946 -- 347,125 489,478 ---------- ---------- ---------- ----------- ---------- Net Assets ........................................ $ 1,537 $ 6,177 -- $ 2,217 $ 3,795 ---------- ---------- ---------- ----------- ---------- CLASS C: Net asset value (Net assets/shares outstanding) and offering price per share ................... $ 6.11 $ 9.72 $ 7.86 $ 6.44 $ 7.75 ---------- ---------- ---------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ................. 627,514 2,414,172 108,125 124,223 323,791 ---------- ---------- ---------- ----------- ---------- Net Assets ........................................ $ 3,836 $ 23,470 $ 850 $ 800 $ 2,509 ---------- ---------- ---------- ----------- ---------- CLASS I: Net asset value (Net assets/shares outstanding) and offering price per share ....................... -- $ 10.14 $ 8.05 -- $ 8.87 ---------- ---------- ---------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ................. -- 992,480 7,795 -- 86,334 ---------- ---------- ---------- ----------- ---------- Net Assets ........................................ -- $ 10,063 $ 63 -- $ 765 ---------- ---------- ---------- ----------- ---------- (1) Investment in securities at cost .............. $ 58,166 $ 126,087 $ 19,730 $ 187,092 $ 83,025 (2) Amount is less than $500 (not reported in thousands)
See Notes to Financial Statements 44 VIRTUS EQUITY TRUST STATEMENTS OF ASSETS AND LIABILITIES MARCH 31, 2009 (Amounts reported in thousands except shares and per share amounts)
---------- ---------- ---------- ----------- ----------- ------------- SMALL-CAP QUALITY SMALL-CAP SMALL-CAP SUSTAINABLE STRATEGIC VALUE SMALL-CAP CORE GROWTH GROWTH GROWTH OPPORTUNITIES FUND FUND FUND FUND FUND FUND ---------- ---------- ---------- ----------- ----------- ------------- ASSETS Investment in securities at value(1) ............ $ 58,180 $ 32,060 $ 47,208 $ 8,294 $ 78,411 $ 47,278 Cash ............................................ -- -- -- -- -- 6 Receivables Investment securities sold ................... -- -- 4,179 545 -- -- Fund shares sold ............................. 181 4 31 25 9 76 Receivable from adviser ...................... -- -- -- 1 -- -- Dividends and interest ....................... 161 51 12 4 57 67 Tax reclaims ................................. -- -- -- -- 9 -- Prepaid expenses ................................ 14 37 15 8 20 11 ---------- ---------- ---------- -------- ----------- ---------- Total assets ........................ 58,536 32,152 51,445 8,877 78,506 47,438 ---------- ---------- ---------- -------- ----------- ---------- LIABILITIES Payables Fund shares repurchased ...................... 144 112 105 242 34 7 Investment securities purchased .............. -- -- 3,145 241 -- -- Investment advisory fees ..................... 11 22 14 -- 51 18 Distribution and service fees ................ 6 5 15 1 17 11 Administration fees .......................... 4 2 4 1 6 4 Transfer agent fees and expenses ............. 40 11 49 4 45 18 Trustees' fees and expenses .................. 1 1 1 --(2) 1 1 Professional fees ............................ 28 22 20 26 39 29 Other accrued expenses ....................... 15 9 15 2 45 12 ---------- ---------- ---------- -------- ----------- ---------- Total liabilities ................... 249 184 3,368 517 238 100 ---------- ---------- ---------- -------- ----------- ---------- NET ASSETS ...................................... $ 58,287 $ 31,968 $ 48,077 $ 8,360 $ 78,268 $ 47,338 ========== ========== ========== ======== =========== ========== NET ASSETS CONSIST OF: Capital paid in on shares of beneficial interest .................................. $ 95,073 $ 45,386 $ 155,258 $ 15,797 $ 179,029 $ 93,862 Accumulated undistributed net investment income (loss) ............................. 307 -- -- -- -- 367 Accumulated undistributed net realized gain (loss) .................................... (14,590) (8,618) (97,804) (5,198) (86,529) (40,909) Net unrealized appreciation (depreciation) on investments ............................... (22,503) (4,800) (9,377) (2,239) (14,232) (5,982) ---------- ---------- ---------- -------- ----------- ---------- NET ASSETS ...................................... $ 58,287 $ 31,968 $ 48,077 $ 8,360 $ 78,268 $ 47,338 ========== ========== ========== ======== =========== ========== CLASS A: Net asset value per share (Net assets/shares outstanding) ................................. $ 6.29 $ 9.36 $ 17.03 $ 6.20 $ 5.78 $ 6.32 ---------- ---------- ---------- -------- ----------- ---------- Maximum offering price per share NAV/(1-5.75%) .. $ 6.67 $ 9.93 $ 18.07 $ 6.58 $ 6.13 $ 6.71 ---------- ---------- ---------- -------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ........... 3,714,694 1,105,105 2,311,131 352,696 12,305,651 7,010,014 ---------- ---------- ---------- -------- ----------- ---------- Net Assets ...................................... $ 23,355 $ 10,339 $ 39,353 $ 2,185 $ 71,082 $ 44,283 ---------- ---------- ---------- -------- ----------- ---------- CLASS B: Net asset value (Net assets/shares outstanding) and offering price per share ................. -- $ 8.77 $ 15.48 -- $ 5.12 -- ---------- ---------- ---------- -------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ........... -- 82,103 268,893 -- 463,658 -- ---------- ---------- ---------- -------- ----------- ---------- Net Assets ...................................... -- $ 720 $ 4,162 -- $ 2,374 -- ---------- ---------- ---------- -------- ----------- ---------- CLASS C: Net asset value (Net assets/shares outstanding) and offering price per share ................. $ 6.28 $ 8.78 $ 15.47 $ 6.06 $ 5.12 $ 6.24 ---------- ---------- ---------- -------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ........... 228,532 344,819 294,889 27,284 328,920 480,562 ---------- ---------- ---------- -------- ----------- ---------- Net Assets ...................................... $ 1,436 $ 3,028 $ 4,562 $ 165 $ 1,685 $ 2,997 ---------- ---------- ---------- -------- ----------- ---------- CLASS I: Net asset value (Net assets/shares outstanding) and offering price per share ................. $ 6.29 $ 9.56 -- $ 6.18 $ 5.82 $ 6.32 ---------- ---------- ---------- -------- ----------- ---------- Shares of beneficial interest outstanding, no par value, unlimited authorization ........... 5,327,104 1,870,590 -- 971,781 537,630 9,143 ---------- ---------- ---------- -------- ----------- ---------- Net Assets ...................................... $ 33,496 $ 17,881 -- $ 6,010 $ 3,127 $ 58 ---------- ---------- ---------- -------- ----------- ---------- (1) Investment in securities at cost ............ $ 80,683 $ 36,860 $ 56,585 $ 10,533 $ 92,643 $ 53,260 (2) Amount is less than $500 (not reported in thousands)
See Notes to Financial Statements 45 VIRTUS EQUITY TRUST STATEMENTS OF OPERATIONS YEAR ENDED MARCH 31, 2009 (Reported in thousands)
----------- --------------- ------------- --------------- ----------- GROWTH ALL-CAP GROWTH & INCOME OPPORTUNITIES INCOME & GROWTH MID-CAP GROWTH FUND FUND FUND FUND GROWTH FUND ----------- --------------- ------------- --------------- ----------- INVESTMENT INCOME Dividends .................................. $ 653 $ 5,027 $ 234 $ 2,675 $ 936 Interest ................................... 16 17 -- 6,934 11 Security lending ........................... 10 -- -- -- 28 Foreign taxes withheld ..................... (5) -- (2) -- 3 -------- -------- -------- -------- -------- Total investment income .................. 674 5,044 232 9,609 978 -------- -------- -------- -------- -------- EXPENSES Investment advisory fees ................... 577 1,451 239 1,494 733 Service fees, Class A ...................... 146 325 75 523 198 Distribution and service fees, Class B ..... 26 113 -- 34 72 Distribution and service fees, Class C ..... 52 361 19 10 41 Administration fees ........................ 56 163 27 180 77 Transfer agent fees and expenses ........... 165 429 41 366 274 Custodian fees ............................. 21 67 31 68 16 Printing fees and expenses ................. 36 33 8 62 20 Professional fees .......................... 39 374 32 39 37 Registration fees .......................... 44 51 41 38 57 Trustees fees and expenses ................. 6 21 3 19 8 Miscellaneous expenses ..................... 12 30 6 39 17 -------- -------- -------- -------- -------- Total expenses ........................... 1,180 3,418 522 2,872 1,550 Less expenses reimbursed by investment adviser .................................. -- (347) (108) -- (136) Custodian fees paid indirectly ............. --(1) --(1) -- (1) --(1) -------- -------- -------- -------- -------- Net expenses ............................. 1,180 3,071 414 2,871 1,414 -------- -------- -------- -------- -------- NET INVESTMENT INCOME (LOSS) ............... (506) 1,973 (182) 6,738 (436) -------- -------- -------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... (12,304) (47,791) (13,890) (31,804) (31,213) Net realized gain (loss) on foreign currency transactions .................... -- -- -- (6) -- Net change in unrealized appreciation (depreciation) on investments ............ (17,734) (38,963) (4,015) (30,050) (11,982) Net change in unrealized appreciation (depreciation) on foreign currency translations ............................. -- -- -- (3) -- -------- -------- -------- -------- -------- NET GAIN (LOSS) ON INVESTMENTS ............... (30,038) (86,754) (17,905) (61,863) (43,195) -------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................. $(30,544) $(84,781) $(18,087) $(55,125) $(43,631) ======== ======== ======== ======== ========
(1) Amount is less than $500 (not reported in thousands) See Notes to Financial Statements 46 VIRTUS EQUITY TRUST STATEMENTS OF OPERATIONS YEAR ENDED MARCH 31, 2009 (Reported in thousands)
--------- -------------- --------- ----------- --------- ------------- SMALL-CAP QUALITY SMALL-CAP SUSTAINABLE STRATEGIC VALUE SMALL-CAP SMALL-CAP CORE GROWTH GROWTH GROWTH OPPORTUNITIES FUND FUND FUND FUND FUND FUND --------- -------------- --------- ----------- --------- ------------- INVESTMENT INCOME Dividends .................................. $ 2,088 $ 720 $ 321 $ 85 $ 1,273 $ 1,797 Interest ................................... 21 6 11 5 3 4 Security lending ........................... -- 11 -- -- -- -- Foreign taxes withheld ..................... -- -- -- -- (7) (1) -------- -------- -------- ------- -------- -------- Total investment income .................. 2,109 737 332 90 1,269 1,800 -------- -------- -------- ------- -------- -------- EXPENSES Investment advisory fees ................... 600 399 763 129 806 538 Service fees, Class A ...................... 34 39 156 16 259 165 Distribution and service fees, Class B ..... -- 12 88 -- 43 -- Distribution and service fees, Class C ..... 20 48 81 2 27 55 Administration fee ......................... 57 39 66 12 97 60 Transfer agent fees and expenses ........... 223 72 348 21 360 141 Custodian fees ............................. 8 8 35 4 16 16 Printing fees and expenses ................. 27 18 24 5 61 15 Professional fees .......................... 35 26 26 32 62 36 Registration fees .......................... 71 53 45 36 46 44 Trustees fees and expenses ................. 6 4 7 1 10 7 Miscellaneous expenses ..................... 11 10 14 5 19 13 -------- -------- -------- ------- -------- -------- Total expenses ........................... 1,092 728 1,653 263 1,806 1,090 Less expenses reimbursed by investment adviser .................................. (244) -- (68) (73) -- (79) Custodian fees paid indirectly ............. --(1) --(1) --(1) --(1) (1) --(1) -------- -------- -------- ------- -------- -------- Net expenses ............................. 848 728 1,585 190 1,805 1,011 -------- -------- -------- ------- -------- -------- NET INVESTMENT INCOME (LOSS) ............... 1,261 9 (1,253) (100) (536) 789 -------- -------- -------- ------- -------- -------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments .... (14,590) (8,618) (22,925) (4,886) (31,280) (33,560) Net change in unrealized appreciation (depreciation) on investments ............ (13,410) (6,704) (18,152) (1,033) (23,340) 37 -------- -------- -------- ------- -------- -------- NET GAIN (LOSS) ON INVESTMENTS ............... (28,000) (15,322) (41,077) (5,919) (54,620) (33,523) -------- -------- -------- ------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .................. $(26,739) $(15,313) $(42,330) $(6,019) $(55,156) $(32,734) ======== ======== ======== ======= ======== ========
(1) Amount is less than $500 (not reported in thousands) See Notes to Financial Statements 47 VIRTUS EQUITY TRUST STATEMENTS OF CHANGES IN NET ASSETS (Reported in thousands)
-------------------------------- ALL-CAP GROWTH FUND -------------------------------- 4/1/08 - 1/1/08 - 1/1/07 - 3/31/09 3/31/08 12/31/07 -------- -------- -------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) .............................. $ (506) $ (179) $ (649) Net realized gain (loss) .................................. (12,304) 3,323 18,100 Net change in unrealized appreciation (depreciation) ...... (17,734) (15,128) (3,853) -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............................................. (30,544) (11,984) 13,598 -------- -------- -------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A .......................... -- -- -- Net investment income, Class B .......................... -- -- -- Net investment income, Class C .......................... -- -- -- Net investment income, Class I .......................... -- -- -- Net realized short-term gains, Class A .................. -- -- (1,902) Net realized short-term gains, Class B .................. -- -- (138) Net realized short-term gains, Class C .................. -- -- (178) Net realized short-term gains, Class I .................. -- -- -- Net realized long-term gains, Class A ................... (2,884) -- (14,171) Net realized long-term gains, Class B ................... (174) -- (1,029) Net realized long-term gains, Class C ................... (278) -- (1,310) Net realized long-term gains, Class I ................... -- -- -- -------- -------- -------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ............................................ (3,336) -- (18,728) -------- -------- -------- FROM SHARE TRANSACTIONS (SEE NOTE 5) Change in net assets from share transactions, Class A ... (5,125) (2,863) (7,071) Change in net assets from share transactions, Class B ... (1,002) (905) (925) Change in net assets from share transactions, Class C ... 934 (175) (3) Change in net assets from share transactions, Class I ... -- -- -- -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ............................................ (5,193) (3,943) (7,999) -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS ..................... (39,073) (15,927) (13,129) NET ASSETS Beginning of period ....................................... $ 84,951 100,878 114,007 -------- -------- -------- END OF PERIOD ............................................. $ 45,878 $ 84,951 $100,878 ======== ======== ======== Accumulated undistributed net investment income (loss) at end of period ........................................ $ -- $ (1) $ (1)
See Notes to Financial Statements 48
------------------------------- -------------------------------- GROWTH & INCOME FUND GROWTH OPPORTUNITIES FUND ------------------------------- -------------------------------- 4/1/08 - 9/1/07 - 9/1/06 - 4/1/08 - 10/1/07 - 10/1/06 - 3/31/09 3/31/08 8/31/07 3/31/09 3/31/08 9/30/07 --------- -------- -------- -------- --------- --------- $ 1,973 $ 873 $ 942 $ (182) $ (183) $ (107) (47,791) 698 28,032 (13,890) (3,577) 385 (38,963) (26,986) 7,072 (4,015) (3,554) 5,240 --------- -------- -------- -------- -------- -------- (84,781) (25,415) 36,046 (18,087) (7,314) 5,518 --------- -------- -------- -------- -------- -------- (1,487) (457) (1,813) -- -- -- -- (29) (69) -- -- -- (11) (65) (105) -- -- -- (256) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --------- -------- -------- -------- -------- -------- (1,754) (551) (1,987) -- -- -- --------- -------- -------- -------- -------- -------- (20,764) (5,316) (1,631) (3,082) 9,745 20,631 (5,673) (6,268) (21,997) -- -- -- (6,538) (2,774) (10,784) (1,854) (356) 4,687 (5,827) 25,505 -- 107 -- -- --------- -------- -------- -------- -------- -------- (38,802) 11,147 (34,412) (4,829) 9,389 25,318 --------- -------- -------- -------- -------- -------- (125,337) (14,819) (353) (22,916) 2,075 30,836 252,245 267,064 267,417 41,284 39,209 8,373 --------- -------- -------- -------- -------- -------- $ 126,908 $252,245 $267,064 $ 18,368 $ 41,284 $ 39,209 ========= ======== ======== ======== ======== ======== $ 1,126 $ 910 $ 528 $ -- $ -- $ --
See Notes to Financial Statements 49 VIRTUS EQUITY TRUST STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) (Reported in thousands)
------------------------------ INCOME & GROWTH FUND ------------------------------ 4/1/08 - 5/1/07 - 5/1/06 - 3/31/09 3/31/08 4/30/07 -------- -------- -------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) .............................................. $ 6,738 $ 6,552 $ 7,651 Net realized gain (loss) .................................................. (31,810) 12,830 12,675 Net change in unrealized appreciation (depreciation) ...................... (30,053) (27,471) 11,624 -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............... (55,125) (8,089) 31,950 -------- -------- -------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A .......................................... (6,951) (6,741) (7,582) Net investment income, Class B .......................................... (82) (97) (149) Net investment income, Class C .......................................... (25) (27) (33) Net investment income, Class I .......................................... -- -- -- Net realized short-term gains, Class A .................................. -- (1,345) (579) Net realized short-term gains, Class B .................................. -- (27) (16) Net realized short-term gains, Class C .................................. -- (7) (4) Net realized short-term gains, Class I .................................. -- -- -- Net realized long-term gains, Class A ................................... (1,597) (16,306) (5,822) Net realized long-term gains, Class B ................................... (28) (328) (157) Net realized long-term gains, Class C ................................... (7) (85) (36) Net realized long-term gains, Class I ................................... -- -- -- -------- -------- -------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ................. (8,690) (24,963) (14,378) -------- -------- -------- FROM SHARE TRANSACTIONS (SEE NOTE 5) Change in net assets from share transactions, Class A ................... (24,315) (13,616) (38,982) Change in net assets from share transactions, Class B ................... (1,659) (1,605) (4,386) Change in net assets from share transactions, Class C ................... (770) 370 (342) Change in net assets from share transactions, Class I ................... -- -- -- -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ................. (26,744) (14,851) (43,710) -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS ..................................... (90,559) (47,903) (26,138) NET ASSETS Beginning of period ....................................................... 257,162 305,065 331,203 -------- -------- -------- END OF PERIOD ............................................................. $166,603 $257,162 $305,065 ======== ======== ======== Accumulated undistributed net investment income (loss) at end of period ... $ 486 $ 583 $ 443
(1) Amount is less than $500 (not reported in thousands) See Notes to Financial Statements 50
-------------------------------- -------------------------------- MID-CAP GROWTH FUND QUALITY SMALL-CAP FUND -------------------------------- -------------------------------- 4/1/08 - 11/1/07 - 11/1/06 - 4/1/08 - 9/1/07 - 9/1/06 - 3/31/09 3/31/08 10/31/07 3/31/09 3/31/08 8/31/07 -------- --------- --------- --------- -------- -------- $ (436) $ (432) $ (927) $ 1,261 $ 450 $ 142 (31,213) (3,746) 13,598 (14,590) 4 102 (11,982) (22,715) 370 (13,410) (9,263) 160 -------- --------- --------- --------- -------- -------- (43,631) (26,893) 13,041 (26,739) (8,809) 404 -------- --------- --------- --------- -------- -------- -- -- -- (195) (76) (1) -- -- -- -- -- -- -- -- -- (16) -- --(1) -- -- -- (1,035) (236) (14) -- -- -- --(1) (24) (1) -- -- -- -- -- -- -- -- -- --(1) (5) --(1) -- -- -- (1) (54) (5) -- -- -- --(1) (4) -- -- -- -- -- -- -- -- -- -- --(1) (1) -- -- -- -- (2) (8) -- -------- --------- --------- --------- -------- -------- -- -- -- (1,249) (408) (21) -------- --------- --------- --------- -------- -------- (8,349) (7,007) (9,057) 16,434 6,155 8,369 (3,449) (2,195) 4,338 -- -- -- (1,274) 92 6,205 175 1,172 1,191 (112) (255) 2,057 8,419 42,586 9,299 -------- --------- --------- --------- -------- -------- (13,184) (9,365) 3,543 25,028 49,913 18,859 -------- --------- --------- --------- -------- -------- (56,815) (36,258) 16,584 (2,960) 40,696 19,242 118,117 154,375 137,791 61,247 20,551 1,309 -------- --------- --------- --------- -------- -------- $ 61,302 $118,117 $154,375 $ 58,287 $ 61,247 $20,551 ======== ========= ========= ========= ======== ======== $ -- $ (10) $ (11) $ 307 $ 291 $ 131
See Notes to Financial Statements 51 VIRTUS EQUITY TRUST STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) (Reported in thousands)
------------------------------- SMALL-CAP CORE FUND ------------------------------- 4/1/08 - 1/1/08 - 1/1/07 - 3/31/09 3/31/08 12/31/07 -------- -------- -------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) .............................................. $ 9 $ (96) $ (583) Net realized gain (loss) .................................................. (8,618) 3,645 10,755 Net change in unrealized appreciation (depreciation) ...................... (6,704) (14,759) (9,319) -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............... (15,313) (11,210) 853 -------- -------- -------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A ......................................... (3) -- -- Net investment income, Class B ......................................... --(1) -- -- Net investment income, Class C ......................................... (1) -- -- Net investment income, Class I ......................................... (4) -- -- Net realized short-term gains, Class A ................................. -- -- (84) Net realized short-term gains, Class B ................................. -- -- (8) Net realized short-term gains, Class C ................................. -- -- (29) Net realized short-term gains, Class I ................................. -- -- (149) Net realized long-term gains, Class A .................................. (1,906) -- (3,015) Net realized long-term gains, Class B .................................. (151) -- (261) Net realized long-term gains, Class C .................................. (654) -- (1,047) Net realized long-term gains, Class I ................................... (3,052) -- (5,038) -------- -------- -------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ................. (5,771) -- (9,631) -------- -------- -------- FROM SHARE TRANSACTIONS (SEE NOTE 5) Change in net assets from share transactions, Class A .................. (3,203) (1,651) (4,974) Change in net assets from share transactions, Class B .................. (416) (209) (626) Change in net assets from share transactions, Class C .................. (1,475) (803) (1,980) Change in net assets from share transactions, Class I .................. (2,905) (3,861) (17,271) -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ................. (7,999) (6,524) (24,851) -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS ..................................... (29,083) (17,734) (33,629) NET ASSETS Beginning of period ....................................................... 61,051 78,785 112,414 -------- -------- -------- END OF PERIOD ............................................................. $ 31,968 $ 61,051 $ 78,785 ======== ======== ======== Accumulated undistributed net investment income (loss) at end of period ... $ -- $ (4) $ (4)
(1) Amount is less than $500 (not reported in thousands) See Notes to Financial Statements 52
------------------------------ --------------------------------- SMALL-CAP GROWTH FUND SMALL-CAP SUSTAINABLE GROWTH FUND ------------------------------ --------------------------------- 4/1/08 - 1/1/08 - 1/1/07 - 4/1/08 - 9/1/07 - 9/1/06 - 3/31/09 3/31/08 12/31/07 3/31/09 3/31/08 8/31/07 -------- -------- -------- --------- --------- --------- $ (1,253) $ (471) $ (2,035) $ (100) $ (96) $ (62) (22,925) 6,931 28,707 (4,886) (226) (84) (18,152) (32,192) (13,242) (1,033) (1,542) 326 -------- -------- -------- ------- ------- ------- (42,330) (25,732) 13,430 (6,019) (1,864) 180 -------- -------- -------- ------- ------- ------- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------- -------- -------- ------- ------- ------- -- -- -- -- -- -- -------- -------- -------- ------- ------- ------- (8,702) (3,147) (26,864) (4,089) (630) 10,064 (5,033) (2,132) (9,836) -- -- -- (2,607) (1,047) (4,440) 79 33 71 -- -- -- 3,756 467 5,216 -------- -------- -------- ------- ------- ------- (16,342) (6,326) (41,140) (254) (130) 15,351 -------- -------- -------- ------- ------- ------- (58,672) (32,058) (27,710) (6,273) (1,994) 15,531 106,749 138,807 166,517 14,633 16,627 1,096 -------- -------- -------- ------- ------- ------- $ 48,077 $106,749 $138,807 $ 8,360 $14,633 $16,627 ======== ======== ======== ======= ======= ======= $ -- $ (2) $ (1) $ -- $ -- $ --
See Notes to Financial Statements 53 VIRTUS EQUITY TRUST STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED) (Reported in thousands)
STRATEGIC GROWTH FUND ------------------------------ 4/1/08 - 5/1/07 - 5/1/06 - 3/31/09 3/31/08 4/30/07 -------- -------- -------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) ............................................. $ (536) $ (906) $ (1,004) Net realized gain (loss) ................................................. (31,280) 10,855 5,267 Net change in unrealized appreciation (depreciation) ..................... (23,340) (16,830) 2,490 -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS .............. (55,156) (6,881) 6,753 -------- -------- -------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A ........................................ -- -- -- Net investment income, Class B ........................................ -- -- -- Net investment income, Class C ........................................ -- -- -- Net investment income, Class I ........................................ -- -- -- Net realized short-term gains, Class A ................................ -- -- -- Net realized short-term gains, Class B ................................ -- -- -- Net realized short-term gains, Class C ................................ -- -- -- Net realized short-term gains, Class I ................................ -- -- -- Net realized long-term gains, Class A ................................. -- -- -- Net realized long-term gains, Class B ................................. -- -- -- Net realized long-term gains, Class C ................................. -- -- -- Net realized long-term gains, Class I ................................. -- -- -- -------- -------- -------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ................ -- -- -- -------- -------- -------- FROM SHARE TRANSACTIONS (SEE NOTE 5) Change in net assets from share transactions, Class A ................. (12,402) (22,089) 49,031 Change in net assets from share transactions, Class B ................. (1,860) (3,417) 1,773 Change in net assets from share transactions, Class C ................. (625) (1,042) 3,131 Change in net assets from share transactions, Class I ................. (364) (1,275) 6,623 -------- -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ................ (15,251) (27,823) 60,558 -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS .................................... (70,407) (34,704) 67,311 NET ASSETS Beginning of period ...................................................... 148,675 183,379 116,068 -------- -------- -------- END OF PERIOD ............................................................ $ 78,268 $148,675 $183,379 ======== ======== ======== Accumulated undistributed net investment income (loss) at end of period .. $ -- $ (10) $ (23)
(1) Amount is less than $500 (not reported in thousands) See Notes to Financial Statements 54
VALUE OPPORTUNITIES FUND ------------------------------ 4/1/08 - 7/1/07 - 7/1/06 - 3/31/09 3/31/08 6/30/07 -------- -------- -------- $ 789 $ 257 $ 101 (33,560) (3,374) 1,405 37 (21,500) 4,306 -------- -------- -------- (32,734) (24,617) 5,812 -------- -------- -------- (390) (416) (28) -- -- -- (4) (37) --(1) (1) -- -- -- (1,577) (177) -- -- -- -- (179) (10) -- -- -- -- (145) (34) -- -- -- -- (16) (2) -- -- -- -------- -------- -------- (395) (2,370) (251) -------- -------- -------- (15,485) 63,772 42,024 -- -- -- (3,575) 10,726 855 101 -- -- -------- -------- -------- (18,959) 74,498 42,879 -------- -------- -------- (52,088) 47,511 48,440 99,426 51,915 3,475 -------- -------- -------- $ 47,338 $ 99,426 $ 51,915 ======== ======== ======== $ 367 $ (7) $ 81
See Notes to Financial Statements 55 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS ------------------------------------------------------------------------------------------------------------------------ ------------------- ALL-CAP GROWTH FUND ------------------- CLASS A 4/1/08 to 3/31/09 $12.76 (0.07) (4.53) (4.60) -- (0.50) (0.50) 1/1/08 to 3/31/08 14.48 (0.02) (1.70) (1.72) -- -- -- 1/1/07 to 12/31/07 15.45 (0.08) 2.13 2.05 -- (3.02) (3.02) 1/1/06 to 12/31/06 16.75 (0.11) 0.26 0.15 -- (1.45) (1.45) 1/1/05 to 12/31/05 16.51 (0.12) 1.39 1.27 -- (1.03) (1.03) 1/1/04 to 12/31/04 15.10 (0.05) 1.46 1.41 -- -- -- CLASS B 4/1/08 to 3/31/09 $10.35 (0.12) (3.61) (3.73) -- (0.50) (0.50) 1/1/08 to 3/31/08 11.77 (0.04) (1.38) (1.42) -- -- -- 1/1/07 to 12/31/07 13.16 (0.18) 1.81 1.63 -- (3.02) (3.02) 1/1/06 to 12/31/06 14.59 (0.20) 0.22 0.02 -- (1.45) (1.45) 1/1/05 to 12/31/05 14.61 (0.22) 1.23 1.01 -- (1.03) (1.03) 1/1/04 to 12/31/04 13.46 (0.15) 1.30 1.15 -- -- -- CLASS C 4/1/08 to 3/31/09 $10.35 (0.11) (3.63) (3.74) -- (0.50) (0.50) 1/1/08 to 3/31/08 11.77 (0.04) (1.38) (1.42) -- -- -- 1/1/07 to 12/31/07 13.15 (0.18) 1.82 1.64 -- (3.02) (3.02) 1/1/06 to 12/31/06 14.59 (0.20) 0.21 0.01 -- (1.45) (1.45) 1/1/05 to 12/31/05 14.61 (0.22) 1.23 1.01 -- (1.03) (1.03) 1/1/04 to 12/31/04 13.46 (0.15) 1.30 1.15 -- -- -- -------------------- GROWTH & INCOME FUND -------------------- CLASS A 4/1/08 to 3/31/09 $16.47 0.17 (6.33) (6.16) (0.16) -- (0.16) 9/1/07 to 3/31/08 18.08 0.08 (1.65) (1.57) (0.04) -- (0.04) 9/1/06 to 8/31/07 15.96 0.10 2.20 2.30 (0.18) -- (0.18) 9/1/05 to 8/31/06 14.74 0.13 1.19 1.32 (0.10) -- (0.10) 9/1/04 to 8/31/05 13.15 0.12 1.57 1.69 (0.10) -- (0.10) 9/1/03 to 8/31/04 11.86 0.09 1.30 1.39 (0.10) -- (0.10) CLASS B 4/1/08 to 3/31/09 $15.71 0.05 (6.03) (5.98) -- -- -- 9/1/07 to 3/31/08 17.31 --(5) (1.58) (1.58) (0.02) -- (0.02) 9/1/06 to 8/31/07 15.26 (0.02) 2.10 2.08 (0.03) -- (0.03) 9/1/05 to 8/31/06 14.13 0.01 1.14 1.15 (0.02) -- (0.02) 9/1/04 to 8/31/05 12.61 0.01 1.51 1.52 -- -- -- 9/1/03 to 8/31/04 11.38 (0.01) 1.25 1.24 (0.01) -- (0.01) CLASS C 4/1/08 to 3/31/09 $15.72 0.06 (6.06) (6.00) --(5) -- -- 9/1/07 to 3/31/08 17.31 --(5) (1.57) (1.57) (0.02) -- (0.02) 9/1/06 to 8/31/07 15.26 (0.03) 2.11 2.08 (0.03) -- (0.03) 9/1/05 to 8/31/06 14.13 0.01 1.14 1.15 (0.02) -- (0.02) 9/1/04 to 8/31/05 12.62 0.01 1.50 1.51 -- -- -- 9/1/03 to 8/31/04 11.38 (0.01) 1.26 1.25 (0.01) -- (0.01) CLASS I 4/1/08 to 3/31/09 $16.49 0.20 (6.33) (6.13) (0.22) -- (0.22) 11/13/07(8) to 3/31/08 18.33 0.06 (1.90) (1.84) -- -- --
The footnote legend is at the end of the financial highlights. See Notes to Financial Statements 56
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME (LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) (IN THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE ------------------------------------------------------------------------------------------------------------- (5.10) $ 7.66 (37.67)% $ 40,505 1.70% 1.70% (0.68)% 113% (1.72) 12.76 (11.88)(4) 75,234 1.69(3) 1.69(3) (0.73)(3) 12(4) (0.97) 14.48 13.43 88,631 1.53 1.53 (0.51) 57 (1.30) 15.45 1.09 99,699 1.50 1.50 (0.68) 73 0.24 16.75 7.62 135,930 1.46 1.46 (0.73) 69 1.41 16.51 9.34 168,498 1.43 1.43 (0.32) 47 (4.23) $ 6.12 (38.04)% $ 1,537 2.43% 2.43% (1.42)% 113% (1.42) 10.35 (12.06)(4) 3,882 2.43(3) 2.43(3) (1.48)(3) 12(4) (1.39) 11.77 12.57 5,402 2.28 2.28 (1.27) 57 (1.43) 13.16 0.34 6,798 2.25 2.25 (1.43) 73 (0.02) 14.59 6.84 10,476 2.21 2.21 (1.48) 69 1.15 14.61 8.54 12,316 2.18 2.18 (1.10) 47 (4.24) $ 6.11 (38.14)% $ 3,836 2.46% 2.46% (1.43)% 113% (1.42) 10.35 (12.06)(4) 5,835 2.44(3) 2.44(3) (1.48)(3) 12(4) (1.38) 11.77 12.66 6,845 2.28 2.28 (1.26) 57 (1.44) 13.15 0.27 7,509 2.25 2.25 (1.43) 73 (0.02) 14.59 6.84 10,307 2.21 2.21 (1.48) 69 1.15 14.61 8.54 12,830 2.18 2.18 (1.09) 47 (6.32) $10.15 (37.65)% $ 87,198 1.42% 1.60% 1.19% 112% (1.61) 16.47 (8.69)(4) 166,600 1.37(3) 1.51(3) 0.73(3) 53(4) 2.12 18.08 14.43 188,479 1.28 1.42 0.60 37 1.22 15.96 9.02 168,209 1.25 1.39 0.86 33 1.59 14.74 12.85 178,557 1.25 1.40 0.84 41 1.29 13.15 11.74 201,230 1.25 1.38 0.68 53 (5.98) $ 9.73 (38.06)% $ 6,177 2.17% 2.35% 0.40% 112% (1.60) 15.71 (9.14)(4) 16,658 2.11(3) 2.24(3) (0.03)(3) 53(4) 2.05 17.31 13.64 24,731 2.03 2.17 (0.14) 37 1.13 15.26 8.18 41,863 2.00 2.14 0.09 33 1.52 14.13 12.05 58,869 2.00 2.15 0.10 41 1.23 12.61 10.90 68,637 2.00 2.14 (0.07) 53 (6.00) $ 9.72 (38.15)% $ 23,470 2.17% 2.35% 0.43% 112% (1.59) 15.72 (9.08)(4) 46,292 2.12(3) 2.26(3) (0.02)(3) 53(4) 2.05 17.31 13.64 53,854 2.03 2.17 (0.15) 37 1.13 15.26 8.18 57,345 2.00 2.14 0.10 33 1.51 14.13 12.05 68,432 2.00 2.15 0.10 41 1.24 12.62 10.80 78,570 2.00 2.13 (0.07) 53 (6.35) $10.14 (37.51)% $ 10,063 1.17% 1.35% 1.40% 112% (1.84) 16.49 (10.04)(4) 22,695 1.19(3) 1.34(3) 0.88(3) 53(4)
See Notes to Financial Statements 57 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS --------------------------------------------------------------------------------------------------------------------------- ------------------------- GROWTH OPPORTUNITIES FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $13.78 (0.06) (5.69) (5.75) -- -- -- 10/1/07 to 3/31/08 15.98 (0.05) (2.15) (2.20) -- -- -- 10/1/06 to 9/30/07 12.22 (0.09) 3.85 3.76 -- -- -- 10/1/05 to 9/30/06 11.68 (0.07) 0.61 0.54 -- -- -- 10/1/04 to 9/30/05(7) 9.88 (0.07) 1.87 1.80 -- -- -- 10/1/03 to 9/30/04(7) 9.35 (0.07) 0.60 0.53 -- -- -- CLASS C 4/1/08 to 3/31/09 $13.60 (0.15) (5.59) (5.74) -- -- -- 10/1/07 to 3/31/08 15.81 (0.11) (2.10) (2.21) -- -- -- 10/1/06 to 9/30/07 12.19 (0.22) 3.84 3.62 -- -- -- 6/9/06(8) to 9/30/06 11.87 (0.05) 0.37 0.32 -- -- -- CLASS I 6/6/08(8) to 3/31/09 $14.53 (0.01) (6.47) (6.48) -- -- -- -------------------- INCOME & GROWTH FUND -------------------- CLASS A 4/1/08 to 3/31/09 $ 8.59 0.24 (2.18) (1.94) (0.26) (0.06) (0.32) 5/1/07 to 3/31/08 9.71 0.22 (0.48) (0.26) (0.23) (0.63) (0.86) 5/1/06 to 4/30/07 9.18 0.23 0.75 0.98 (0.24) (0.21) (0.45) 5/1/05 to 4/30/06 8.90 0.22 0.44 0.66 (0.24) (0.14) (0.38) 5/1/04 to 4/30/05 8.66 0.22 0.26 0.48 (0.24) -- (0.24) 5/1/03 to 4/30/04 7.92 0.22 0.76 0.98 (0.24) -- (0.24) CLASS B 4/1/08 to 3/31/09 $ 8.65 0.18 (2.18) (2.00) (0.20) (0.06) (0.26) 5/1/07 to 3/31/08 9.77 0.15 (0.48) (0.33) (0.16) (0.63) (0.79) 5/1/06 to 4/30/07 9.23 0.16 0.76 0.92 (0.17) (0.21) (0.38) 5/1/05 to 4/30/06 8.95 0.15 0.44 0.59 (0.17) (0.14) (0.31) 5/1/04 to 4/30/05 8.71 0.15 0.26 0.41 (0.17) -- (0.17) 5/1/03 to 4/30/04 7.96 0.16 0.76 0.92 (0.17) -- (0.17) CLASS C 4/1/08 to 3/31/09 $ 8.73 0.18 (2.21) (2.03) (0.20) (0.06) (0.26) 5/1/07 to 3/31/08 9.86 0.16 (0.50) (0.34) (0.16) (0.63) (0.79) 5/1/06 to 4/30/07 9.31 0.16 0.77 0.93 (0.17) (0.21) (0.38) 5/1/05 to 4/30/06 9.02 0.15 0.45 0.60 (0.17) (0.14) (0.31) 5/1/04 to 4/30/05 8.78 0.15 0.26 0.41 (0.17) -- (0.17) 5/1/03 to 4/30/04 8.02 0.15 0.78 0.93 (0.17) -- (0.17) ------------------- MID-CAP GROWTH FUND ------------------- CLASS A 4/1/08 to 3/31/09 $14.78 (0.05) (5.90) (5.95) -- -- -- 11/1/07 to 3/31/08 17.98 (0.05) (3.15) (3.20) -- -- -- 11/1/06 to 10/31/07 16.33 (0.10) 1.75 1.65 -- -- -- 11/1/05 to 10/31/06 15.42 (0.08) 0.99 0.91 -- -- -- 11/1/04 to 10/31/05 13.40 (0.16) 2.18 2.02 -- -- -- 11/1/03 to 10/31/04 13.97 (0.17) (0.40) (0.57) -- -- --
The footnote legend is at the end of the financial highlights. See Notes to Financial Statements 58
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME (LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD (IN AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE --------------------------------------------------------------------------------------------------------- (5.75) $ 8.03 (41.73)% $ 17,455 1.25% 1.59% (0.52)% 192% (2.20) 13.78 (13.77)(4) 37,661 1.30(3) 1.50(3) (0.69)(3) 126(4) 3.76 15.98 30.77 34,039 1.26 1.87 (0.62) 143 0.54 12.22 4.62 8,253 1.25 2.01 (0.56) 189 1.80 11.68 18.22 7,158 1.25 1.73 (0.64) 206 0.53 9.88 5.67 4,430 1.25 1.83 (0.70) 262 (5.74) $ 7.86 (42.16)% $ 850 2.00% 2.35% (1.33)% 192% (2.21) 13.60 (14.10)(4) 3,623 2.03(3) 2.22(3) (1.45)(3) 126(4) 3.62 15.81 29.78 5,170 2.06 2.66 (1.48) 143 0.32 12.19 2.70 120 2.00 3.72 (1.28) 189 (6.48) $ 8.05 (44.60)%(4) $ 63 1.02%(3) 1.35%(3) (0.12)%(3) 192%(4) (2.26) $ 6.33 (23.17)% $163,586 1.33% 1.33% 3.19% 86% (1.12) 8.59 (3.08)(4) 250,502 1.32(3) 1.32(3) 2.52(3) 44(4) 0.53 9.71 10.93 296,354 1.34 1.34 2.47 46 0.28 9.18 7.33 318,318 1.28 1.28 2.38 72 0.24 8.90 5.53 350,609 1.28 1.28 2.46 59 0.74 8.66 12.40 381,423 1.29 1.29 2.54 83 (2.26) $ 6.39 (23.59)% $ 2,217 2.08% 2.08% 2.38% 86% (1.12) 8.65 (3.79)(4) 4,820 2.06(3) 2.06(3) 1.76(3) 44(4) 0.54 9.77 10.04 7,059 2.08 2.08 1.73 46 0.28 9.23 6.58 10,997 2.03 2.03 1.62 72 0.24 8.95 4.69 16,145 2.03 2.03 1.71 59 0.75 8.71 11.61 24,228 2.04 2.04 1.82 83 (2.29) $ 6.44 (23.72)% $ 800 2.08% 2.08% 2.38% 86% (1.13) 8.73 (3.85)(4) 1,840 2.07(3) 2.07(3) 1.78(3) 44(4) 0.55 9.86 10.06 1,652 2.09 2.09 1.72 46 0.29 9.31 6.64 1,888 2.03 2.03 1.63 72 0.24 9.02 4.65 1,988 2.03 2.03 1.71 59 0.76 8.78 11.64 1,980 2.04 2.04 1.77 83 (5.95) $ 8.83 (40.26)% $ 54,233 1.45% 1.60% (0.38)% 93% (3.20) 14.78 (17.80)(4) 100,416 1.66(3) 1.76(3) (0.68)(3) 27(4) 1.65 17.98 10.10 130,028 1.55 1.55 (0.60) 77 0.91 16.33 5.90 127,160 1.52 1.52 (0.50) 124 2.02 15.42 15.07 142,651 1.53 1.53 (1.06) 46 (0.57) 13.40 (4.08) 166,244 1.50 1.50 (1.22) 181
See Notes to Financial Statements 59 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS -------------------------------------------------------------------------------------------------- ------------------------- MID-CAP GROWTH FUND (CONTINUED) ------------------------- CLASS B 4/1/08 to 3/31/09 $13.09 (0.13) (5.21) (5.34) -- -- -- 11/1/07 to 3/31/08 15.97 (0.08) (2.80) (2.88) -- -- -- 11/1/06 to 10/31/07 14.61 (0.24) 1.60 1.36 -- -- -- 11/1/05 to 10/31/06 13.91 (0.18) 0.88 0.70 -- -- -- 11/1/04 to 10/31/05 12.18 (0.25) 1.98 1.73 -- -- -- 11/1/03 to 10/31/04 12.78 (0.25) (0.35) (0.60) -- -- -- CLASS C 4/1/08 to 3/31/09 $13.07 (0.13) (5.19) (5.32) -- -- -- 11/1/07 to 3/31/08 15.96 (0.08) (2.81) (2.89) -- -- -- 11/1/06 to 10/31/07 14.60 (0.41) 1.77 1.36 -- -- -- 11/1/05 to 10/31/06 13.89 (0.19) 0.90 0.71 -- -- -- 11/1/04 to 10/31/05 12.16 (0.25) 1.98 1.73 -- -- -- 11/1/03 to 10/31/04 12.77 (0.24) (0.37) (0.61) -- -- -- CLASS I 4/1/08 to 3/31/09 $14.80 (0.02) (5.91) (5.93) -- -- -- 11/1/07 to 3/31/08 17.99 (0.03) (3.16) (3.19) -- -- -- 9/13/07(8) to 10/31/07 17.25 (0.09) 0.83 0.74 -- -- -- ------------------------- QUALITY SMALL-CAP FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $ 9.66 0.14 (3.37) (3.23) (0.14) --(5) (0.14) 9/1/07 to 3/31/08 11.74 0.11 (2.08) (1.97) (0.08) (0.03) (0.11) 9/1/06 to 8/31/07 10.05 0.25 1.51 1.76 (0.05) (0.02) (0.07) 6/28/06(8) to 8/31/06 10.00 0.03 0.02 0.05 -- -- -- CLASS C 4/1/08 to 3/31/09 $ 9.65 0.07 (3.37) (3.30) (0.07) --(5) (0.07) 9/1/07 to 3/31/08 11.68 0.06 (2.06) (2.00) -- (0.03) (0.03) 9/1/06 to 8/31/07 10.04 0.10 1.57 1.67 (0.01) (0.02) (0.03) 6/28/06(8) to 8/31/06 10.00 0.02 0.02 0.04 -- -- -- CLASS I 4/1/08 to 3/31/09 $ 9.67 0.16 (3.38) (3.22) (0.16) --(5) (0.16) 9/1/07 to 3/31/08 11.76 0.13 (2.08) (1.95) (0.11) (0.03) (0.14) 9/1/06 to 8/31/07 10.06 0.21 1.57 1.78 (0.06) (0.02) (0.08) 6/28/06(8) to 8/31/06 10.00 0.07 (0.01) 0.06 -- -- -- ------------------------- SMALL-CAP CORE FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $14.76 --(5) (3.89) (3.89) --(5) (1.51) (1.51) 1/01/08 to 3/31/08 17.31 (0.02) (2.53) (2.55) -- -- -- 1/1/07 to 12/31/07 19.46 (0.12) 0.10 (0.02) -- (2.13) (2.13) 1/1/06 to 12/31/06 21.15 (0.12) 2.52 2.40 -- (4.09) (4.09) 1/1/05 to 12/31/05 20.59 (0.09) 0.65 0.56 -- -- -- 1/1/04 to 12/31/04 18.12 (0.10) 2.57 2.47 -- -- --
The footnote legend is at the end of the financial highlights. See Notes to Financial Statements 60
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME (LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) (IN THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE -------------------------------------------------------------------------------------------------------------- (5.34) $ 7.75 (40.79)% $ 3,795 2.20% 2.34% (1.17)% 93% (2.88) 13.09 (18.03)(4) 10,600 2.40(3) 2.50(3) (1.42)(3) 27(4) 1.36 15.97 9.31 15,407 2.29 2.29 (1.53) 77 0.70 14.61 5.03 10,102 2.27 2.27 (1.24) 124 1.73 13.91 14.20 12,776 2.28 2.28 (1.81) 46 (0.60) 12.18 (4.69) 15,549 2.24 2.24 (1.97) 181 (5.32) $ 7.75 (40.70)% $ 2,509 2.20% 2.35% (1.16)% 93% (2.89) 13.07 (18.11)(4) 5,629 2.41(3) 2.51(3) (1.43)(3) 27(4) 1.36 15.96 9.32 6,853 2.20 2.20 (2.60) 77 0.71 14.60 5.11 530 2.27 2.27 (1.29) 124 1.73 13.89 14.23 418 2.28 2.28 (1.81) 46 (0.61) 12.16 (4.78) 350 2.24 2.24 (1.97) 181 (5.93) $ 8.87 (40.07)% $ 765 1.20% 1.35% (0.13)% 93% (3.19) 14.80 (17.73)(4) 1,472 1.40(3) 1.50(3) (0.41)(3) 27(4) 0.74 17.99 4.29(4) 2,086 1.09(3) 1.09(3) (3.85)(3) 77(4) (3.37) $ 6.29 (33.77)% $23,355 1.45%(9) 1.84% 1.81% 15% (2.08) 9.66 (16.92)(4) 12,422 1.47(3) 1.63(3) 1.68(3) 0(4) 1.69 11.74 17.51 8,506 1.40 2.19 2.14 17 0.05 10.05 0.50(4) 101 1.40(3) 26.39(3) 1.82(3) 7(4) (3.37) $ 6.28 (34.30)% $ 1,436 2.19%(9) 2.55% 0.89% 15% (2.03) 9.65 (17.25)(4) 2,108 2.22(3) 2.38(3) 0.92(3) 0(4) 1.64 11.68 16.61 1,354 2.16 3.45 0.89 17 0.04 10.04 0.40(4) 138 2.15(3) 25.96(3) 1.38(3) 7(4) (3.38) $ 6.29 (33.66)% $33,496 1.19%(9) 1.55% 1.95% 15% (2.09) 9.67 (16.75)(4) 46,717 1.25(3) 1.42(3) 2.07(3) 0(4) 1.70 11.76 17.74 10,691 1.15 2.54 1.82 17 0.06 10.06 0.60(4) 1,070 1.15(3) 21.32(3) 3.85(3) 7(4) (5.40) $ 9.36 (29.71)% $10,339 1.59% 1.59% (0.01)% 95% (2.55) 14.76 (14.73)(4) 20,204 1.66(3) 1.66(3) (0.60)(3) 8(4) (2.15) 17.31 (0.32) 25,534 1.45 1.45 (0.63) 18 (1.69) 19.46 11.70 33,383 1.47 1.47 (0.55) 26 0.56 21.15 2.72 38,170 1.42 1.42 (0.45) 22 2.47 20.59 13.63 73,825 1.41 1.41 (0.55) 16
See Notes to Financial Statements 61 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS -------------------------------------------------------------------------------------------------- ------------------------- SMALL-CAP CORE FUND (CONTINUED) ------------------------- CLASS B 4/1/08 to 3/31/09 $14.03 (0.09) (3.66) (3.75) --(5) (1.51) (1.51) 1/1/08 to 3/31/08 16.48 (0.05) (2.40) (2.45) -- -- -- 1/1/07 to 12/31/07 18.76 (0.26) 0.11 (0.15) -- (2.13) (2.13) 1/1/06 to 12/31/06 20.67 (0.28) 2.46 2.18 -- (4.09) (4.09) 1/1/05 to 12/31/05 20.27 (0.23) 0.63 0.40 -- -- -- 1/1/04 to 12/31/04 17.94 (0.24) 2.57 2.33 -- -- -- CLASS C 4/1/08 to 3/31/09 $14.05 (0.09) (3.67) (3.76) --(5) (1.51) (1.51) 1/1/08 to 3/31/08 16.50 (0.05) (2.40) (2.45) -- -- -- 1/1/07 to 12/31/07 18.79 (0.26) 0.10 (0.16) -- (2.13) (2.13) 1/1/06 to 12/31/06 20.69 (0.28) 2.47 2.19 -- (4.09) (4.09) 1/1/05 to 12/31/05 20.30 (0.23) 0.62 0.39 -- -- -- 1/1/04 to 12/31/04 17.96 (0.24) 2.58 2.34 -- -- -- CLASS I 4/1/08 to 3/31/09 $15.02 0.03 (3.98) (3.95) --(5) (1.51) (1.51) 1/1/08 to 3/31/08 17.60 (0.01) (2.57) (2.58) -- -- -- 1/1/07 to 12/31/07 19.70 (0.08) 0.11 0.03 -- (2.13) (2.13) 1/1/06 to 12/31/06 21.31 (0.07) 2.55 2.48 -- (4.09) (4.09) 1/1/05 to 12/31/05 20.70 (0.04) 0.65 0.61 -- -- -- 1/1/04 to 12/31/04 18.17 (0.06) 2.59 2.53 -- -- -- ------------------------- SMALL-CAP GROWTH FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $30.28 (0.35) (12.90) (13.25) -- -- -- 1/1/08 to 3/31/08 37.26 (0.12) (6.86) (6.98) -- -- -- 1/1/07 to 12/31/07 34.30 (0.41) 3.37 2.96 -- -- -- 1/1/06 to 12/31/06 32.53 (0.39) 2.16 1.77 -- -- -- 1/1/05 to 12/31/05 29.65 (0.35) 3.23 2.88 -- -- -- 1/1/04 to 12/31/04 27.39 (0.31) 2.57 2.26 -- -- -- CLASS B 4/1/08 to 3/31/09 $27.73 (0.51) (11.74) (12.25) -- -- -- 1/1/08 to 3/31/08 34.19 (0.16) (6.30) (6.46) -- -- -- 1/1/07 to 12/31/07 31.71 (0.64) 3.12 2.48 -- -- -- 1/1/06 to 12/31/06 30.30 (0.59) 2.00 1.41 -- -- -- 1/1/05 to 12/31/05 27.82 (0.54) 3.02 2.48 -- -- -- 1/1/04 to 12/31/04 25.90 (0.50) 2.42 1.92 -- -- -- CLASS C 4/1/08 to 3/31/09 $27.72 (0.50) (11.75) (12.25) -- -- -- 1/1/08 to 3/31/08 34.18 (0.16) (6.30) (6.46) -- -- -- 1/1/07 to 12/31/07 31.70 (0.64) 3.12 2.48 -- -- -- 1/1/06 to 12/31/06 30.29 (0.59) 2.00 1.41 -- -- -- 1/1/05 to 12/31/05 27.81 (0.54) 3.02 2.48 -- -- -- 1/1/04 to 12/31/04 25.88 (0.49) 2.42 1.93 -- -- --
The footnote legend is at the end of the financial highlights. See Notes to Financial Statements 62
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME (LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) (IN THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE -------------------------------------------------------------------------------------------------------------- (5.26) $ 8.77 (30.30)% $ 720 2.34% 2.34% (0.78)% 95% (2.45) 14.03 (14.87)(4) 1,623 2.41(3) 2.41(3) (1.35)(3) 8(4) (2.28) 16.48 (1.04) 2,136 2.20 2.20 (1.39) 18 (1.91) 18.76 10.88 3,024 2.22 2.22 (1.30) 26 0.40 20.67 1.97 3,960 2.19 2.19 (1.19) 22 2.33 20.27 12.99 4,404 2.16 2.16 (1.31) 16 (5.27) $ 8.78 (30.33)% $ 3,028 2.34% 2.34% (0.79)% 95% (2.45) 14.05 (14.85)(4) 6,569 2.41(3) 2.41(3) (1.35)(3) 8(4) (2.29) 16.50 (1.09) 8,590 2.20 2.20 (1.38) 18 (1.90) 18.79 10.93 11,646 2.22 2.22 (1.30) 26 0.39 20.69 1.92 14,102 2.19 2.19 (1.19) 22 2.34 20.30 13.03 17,845 2.16 2.16 (1.31) 16 (5.46) $ 9.56 (29.59)% $ 17,881 1.34% 1.34% 0.22% 95% (2.58) 15.02 (14.66)(4) 32,655 1.41(3) 1.41(3) (0.36)(3) 8(4) (2.10) 17.60 (0.11) 42,525 1.20 1.20 (0.38) 18 (1.61) 19.70 12.05 64,361 1.22 1.22 (0.30) 26 0.61 21.31 2.95 78,290 1.17 1.17 (0.18) 22 2.53 20.70 13.92 92,838 1.15 1.15 (0.32) 16 (13.25) $17.03 (43.76)% $ 39,353 1.84%(9) 1.93% (1.42)% 158% (6.98) 30.28 (18.73)(4) 81,622 1.86(3) 1.86(3) (1.44)(3) 14(4) 2.96 37.26 8.63 104,135 1.67 1.72 (1.12) 35 1.77 34.30 5.41 120,953 1.60 1.68 (1.16) 22 2.88 32.53 9.75 168,527 1.58 1.69 (1.18) 38 2.26 29.65 8.25 255,698 1.58 1.68 (1.15) 35 (12.25) $15.48 (44.18)% $ 4,162 2.59%(9) 2.66% (2.17)% 158% (6.46) 27.73 (18.89)(4) 13,662 2.61(3) 2.61(3) (2.20)(3) 14(4) 2.48 34.19 7.82 19,320 2.42 2.47 (1.87) 35 1.41 31.71 4.62 27,138 2.35 2.44 (1.91) 22 2.48 30.30 8.95 41,105 2.34 2.44 (1.93) 38 1.92 27.82 7.41 58,574 2.33 2.42 (1.93) 35 (12.25) $15.47 (44.19)% $ 4,562 2.59%(9) 2.67% (2.17)% 158% (6.46) 27.72 (18.90)(4) 11,465 2.61(3) 2.61(3) (2.19)(3) 14(4) 2.48 34.18 7.82 15,352 2.42 2.47 (1.87) 35 1.41 31.70 4.66 18,426 2.36 2.43 (1.91) 22 2.48 30.29 8.92 23,653 2.34 2.44 (1.93) 38 1.93 27.81 7.46 30,280 2.33 2.42 (1.92) 35
See Notes to Financial Statements 63 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS -------------------------------------------------------------------------------------------------- ------------------------- SMALL-CAP SUSTAINABLE GROWTH FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $ 9.15 (0.08) (2.87) (2.95) -- -- -- 9/1/07 to 3/31/08 10.34 (0.07) (1.12) (1.19) -- -- -- 9/1/06 to 8/31/07 9.79 (0.10) 0.65 0.55 -- -- -- 6/28/06(8) to 8/31/06 10.00 (0.01) (0.20) (0.21) -- -- -- CLASS C 4/1/08 to 3/31/09 $ 9.03 (0.12) (2.85) (2.97) -- -- -- 9/1/07 to 3/31/08 10.25 (0.11) (1.11) (1.22) -- -- -- 9/1/06 to 8/31/07 9.77 (0.18) 0.66 0.48 -- -- -- 6/28/06(8) to 8/31/06 10.00 (0.03) (0.20) (0.23) -- -- -- CLASS I 4/1/08 to 3/31/09 $ 9.19 (0.04) (2.97) (3.01) -- -- -- 9/1/07 to 3/31/08 10.37 (0.05) (1.13) (1.18) -- -- -- 9/1/06 to 8/31/07 9.79 (0.08) 0.66 0.58 -- -- -- 6/28/06(8) to 8/31/06 10.00 (0.01) (0.20) (0.21) -- -- -- ------------------------- STRATEGIC GROWTH FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $ 9.50 (0.03) (3.69) (3.72) -- -- -- 5/1/07 to 3/31/08 9.99 (0.05) (0.44) (0.49) -- -- -- 5/1/06 to 4/30/07 9.78 (0.06) 0.27 0.21 -- -- -- 5/1/05 to 4/30/06 8.59 (0.06) 1.25 1.19 -- -- -- 5/1/04 to 4/30/05 8.64 (0.06) 0.01 (0.05) -- -- -- 5/1/03 to 4/30/04 7.17 (0.06) 1.53 1.47 -- -- -- CLASS B 4/1/08 to 3/31/09 $ 8.48 (0.08) (3.28) (3.36) -- -- -- 5/1/07 to 3/31/08 8.98 (0.11) (0.39) (0.50) -- -- -- 5/1/06 to 4/30/07 8.86 (0.12) 0.24 0.12 -- -- -- 5/1/05 to 4/30/06 7.84 (0.12) 1.14 1.02 -- -- -- 5/1/04 to 4/30/05 7.94 (0.11) 0.01 (0.10) -- -- -- 5/1/03 to 4/30/04 6.64 (0.11) 1.41 1.30 -- -- -- CLASS C 4/1/08 to 3/31/09 $ 8.49 (0.08) (3.29) (3.37) -- -- -- 5/1/07 to 3/31/08 8.99 (0.11) (0.39) (0.50) -- -- -- 5/1/06 to 4/30/07 8.87 (0.11) 0.23 0.12 -- -- -- 5/1/05 to 4/30/06 7.85 (0.12) 1.14 1.02 -- -- -- 5/1/04 to 4/30/05 7.95 (0.11) 0.01 (0.10) -- -- -- 5/1/03 to 4/30/04 6.65 (0.12) 1.42 1.30 -- -- -- CLASS I 4/1/08 to 3/31/09 $ 9.54 (0.01) (3.71) (3.72) -- -- -- 5/1/07 to 3/31/08 10.01 (0.03) (0.44) (0.47) -- -- -- 9/29/06(8) to 4/30/07 9.26 (0.01) 0.76 0.75 -- -- --
The footnote legend is at the end of the financial highlights. See Notes to Financial Statements 64
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME/(LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) (IN THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE -------------------------------------------------------------------------------------------------------------- (2.95) $ 6.20 (32.24)% $ 2,185 1.44%(9) 1.97% (0.87)% 64% (1.19) 9.15 (11.51)(4) 8,481 1.54(3) 1.84(3) (1.12)(3) 12(4) 0.55 10.34 5.62 10,222 1.40 2.16 (0.96) 26 (0.21) 9.79 (2.10)(4) 100 1.40(3) 28.32(3) (0.87)(3) 4(4) (2.97) $ 6.06 (32.89)% $ 165 2.22%(9) 2.72% (1.57)% 64% (1.22) 9.03 (11.90)(4) 181 2.29(3) 2.60(3) (1.86)(3) 12(4) 0.48 10.25 4.81 174 2.15 4.31 (1.78) 26 (0.23) 9.77 (2.20)(4) 98 2.15(3) 29.09(3) (1.61)(3) 4(4) (3.01) $ 6.18 (32.75)% $ 6,010 1.23%(9) 1.72% (0.55)% 64% (1.18) 9.19 (11.38)(4) 5,971 1.30(3) 1.60(3) (0.88)(3) 12(4) 0.58 10.37 5.92 6,231 1.16 2.94 (0.77) 26 (0.21) 9.79 (2.10)(4) 898 1.15(3) 23.99(3) (0.61)(3) 4(4) (3.72) $ 5.78 (39.16)% $ 71,082 1.53% 1.53% (0.43)% 91% (0.49) 9.50 (4.90)(4) 133,119 1.44(3) 1.44(3) (0.53)(3) 75(4) 0.21 9.99 2.15 161,396 1.61 1.61 (0.61) 81 1.19 9.78 13.85 106,693 1.62 1.62 (0.66) 63 (0.05) 8.59 (0.58) 128,426 1.56 1.56 (0.67) 107 1.47 8.64 20.50 162,974 1.52 1.52 (0.73) 167 (3.36) $ 5.12 (39.62)% $ 2,374 2.27% 2.27% (1.18)% 91% (0.50) 8.48 (5.57)(4) 6,242 2.19(3) 2.19(3) (1.27)(3) 75(4) 0.12 8.98 1.35 9,932 2.36 2.36 (1.36) 81 1.02 8.86 13.01 7,885 2.37 2.37 (1.41) 63 (0.10) 7.84 (1.26) 11,006 2.32 2.32 (1.40) 107 1.30 7.94 19.58 24,989 2.27 2.27 (1.48) 167 (3.37) $ 5.12 (39.69)% $ 1,685 2.28% 2.28% (1.18)% 91% (0.50) 8.49 (5.56)(4) 3,625 2.19(3) 2.19(3) (1.27)(3) 75(4) 0.12 8.99 1.35 4,843 2.32 2.32 (1.30) 81 1.02 8.87 12.99 1,490 2.37 2.37 (1.42) 63 (0.10) 7.85 (1.26) 2,371 2.31 2.31 (1.42) 107 1.30 7.95 19.55 3,713 2.27 2.27 (1.48) 167 (3.72) $ 5.82 (38.99)% $ 3,127 1.28% 1.28% (0.18)% 91% (0.47) 9.54 (4.70)(4) 5,689 1.19(3) 1.19(3) (0.27)(3) 75(4) 0.75 10.01 8.10(4) 7,208 1.27(3) 1.27(3) (0.24)(3) 81(4)
See Notes to Financial Statements 65 VIRTUS EQUITY TRUST FINANCIAL HIGHLIGHTS (CONTINUED) SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET ASSET NET NET TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT REALIZED AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(2) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS -------------------------------------------------------------------------------------------------- ------------------------- VALUE OPPORTUNITIES FUND ------------------------- CLASS A 4/1/08 to 3/31/09 $10.51 0.10 (4.24) (4.14) (0.05) -- (0.05) 7/1/07 to 3/31/08 13.67 0.04 (2.87) (2.83) (0.07) (0.26) (0.33) 7/1/06 to 6/30/07 11.20 0.06 2.86 2.92 (0.05) (0.40) (0.45) 7/29/05(8) to 6/30/06 10.00 0.07 1.17 1.24 (0.04) -- (0.04) CLASS C 4/1/08 to 3/31/09 $10.40 0.03 (4.18) (4.15) (0.01) -- (0.01) 7/1/07 to 3/31/08 13.60 (0.03) (2.85) (2.88) (0.06) (0.26) (0.32) 7/1/06 to 6/30/07 11.18 (0.03) 2.85 2.82 --(5) (0.40) (0.40) 7/29/05(8) to 6/30/06 10.00 --(5) 1.19 1.19 (0.01) -- (0.01) CLASS I 6/6/08(8) to 3/31/09 $11.04 0.11 (4.76) (4.65) (0.07) -- (0.07) FOOTNOTE LEGEND: (1) Sales charges, where applicable, are not reflected in the total return calculation. (2) Computed using average shares outstanding. (3) Annualized. (4) Not annualized. (5) Amount is less than $0.005. (6) For the Value Opportunities Fund, the ratio of net expenses to average net assets excludes the effect of expense offsets for custodian fees; if expense offsets were included, the ratio would have been 0.05% lower than the ratio shown in the table. (7) Due to a reorganization on June 9, 2006, the Growth Opportunities Fund is the successor of the Turner Strategic Growth Fund. Class A treats the past performance of the Turner Strategic Growth Fund as its own. (8) Inception date. (9) Represents a blended Ratio, for more information regarding this see Note 3 in the Notes to Financial Statements.
See Notes to Financial Statements 66
RATIO OF GROSS EXPENSES TO NET NET AVERAGE RATIO OF NET ASSET ASSETS, RATIO OF NET NET ASSETS INVESTMENT CHANGE IN VALUE, END OF EXPENSES TO (BEFORE WAIVERS INCOME/(LOSS) PORTFOLIO NET ASSET END OF TOTAL PERIOD AVERAGE NET AND TO AVERAGE NET TURNOVER VALUE PERIOD RETURN(1) (IN THOUSANDS) ASSETS REIMBURSEMENTS) ASSETS RATE -------------------------------------------------------------------------------------------------------------- (4.19) $ 6.32 (39.44)% $44,283 1.35% 1.46% 1.16% 140% (3.16) 10.51 (21.06)(4) 90,476 1.52(3) 1.55(3) 0.45(3) 103(4) 2.47 13.67 26.71 50,788 1.41 1.60 0.46 101 1.20 11.20 12.41(4) 3,292 1.40(3)(6) 7.45(3) 0.72(3) 136(4) (4.16) $ 6.24 (39.93)% $ 2,997 2.10% 2.20% 0.33% 140% (3.20) 10.40 (21.54)(4) 8,950 2.27(3) 2.31(3) (0.33)(3) 103(4) 2.42 13.60 25.77 1,128 2.16 2.58 (0.22) 101 1.18 11.18 11.85(4) 183 2.15(3)(6) 8.19(3) (0.05)(3) 136(4) (4.72) $ 6.32 (42.22)%(4) $ 58 1.10%(3) 1.25%(3) 1.68%(3) 140%(4)
See Notes to Financial Statements 67 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 1. ORGANIZATION Effective October 1, 2008, the Phoenix Funds became Virtus Mutual Funds, and all of the Funds were renamed to reflect the new Virtus name. On October 20, 2008, the Trusts' names were also updated to reflect the new name. Virtus Equity 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, 14 funds of the Trust are offered for sale (each a "Fund"), of which 11 are reported in this annual report. Each Fund's investment objective is outlined on the respective Fund's summary page. The Funds offer the following classes of shares for sale. CLASS A CLASS B CLASS C CLASS I SHARES SHARES SHARES SHARES ------- ------- ------- ------- All-Cap Growth Fund (please refer to Note 15) ............................................ [X] [X] [X] -- Growth & Income Fund ..................................................................... [X] [X] [X] [X] Growth Opportunities Fund ................................................................ [X] -- [X] [X] Income & Growth Fund ..................................................................... [X] [X] [X] -- Mid-Cap Growth Fund ...................................................................... [X] [X] [X] [X] Quality Small-Cap Fund ................................................................... [X] -- [X] [X] Small-Cap Core Fund ...................................................................... [X] [X] [X] [X] Small-Cap Growth Fund .................................................................... [X] [X] [X] -- Small-Cap Sustainable Growth Fund ........................................................ [X] -- [X] [X] Strategic Growth Fund .................................................................... [X] [X] [X] [X] Value Opportunities Fund ................................................................. [X] -- [X] [X] Class A shares are sold with a front-end sales charge of up A. SECURITIES VALUATION: to 5.75% with some exceptions. Generally, Class A shares are not subject to any charges by the Funds when redeemed; Equity securities are valued at the official closing price however, a 1% contingent deferred sales charge ("CDSC") may (typically last sale) on the exchange on which the be imposed on certain redemptions made within one year securities are primarily traded, or if no closing price is following purchases on which a finder's fee has been paid. available, at the last bid price. The one-year period begins on the last day of the month preceding the month in which the purchase was made. Class B Debt securities are valued on the basis of broker shares are sold with a contingent deferred sales charge, quotations or valuations provided by a pricing service, which declines from 5% to zero depending on the period of which utilizes information with respect to recent sales, time the shares are held. Class C shares are sold with a 1% market transactions in comparable securities, quotations contingent deferred sales charge if redeemed within one year from dealers, and various relationships between securities of purchase. Class I shares are sold without a sales charge. in determining value. Due to excessive volatility in the current market (please see Note 14 on Market Conditions), Each class of shares has identical voting, dividend, valuations developed through pricing techniques may liquidation and other rights and the same terms and materially vary from the actual amounts realized upon sale conditions, except that each class bears different of the securities. distribution and/or service expenses and has exclusive voting rights with respect to its distribution plan. Class I shares As required, some securities and assets may be valued at bear no distribution and/or service expenses. Income and fair value as determined in good faith by or under the other expenses and realized and unrealized gains and losses direction of the Trustees. of each Fund are borne pro rata by the holders of each class of shares. Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are 2. SIGNIFICANT ACCOUNTING POLICIES deemed not reflective of readily available market prices. For example, significant events (such as movement in the The following is a summary of significant accounting policies U.S. securities market, or other regional and local consistently followed by the Trust in the preparation of its developments) may occur between the time that foreign financial statements. The preparation of financial statements markets close (where the security is principally traded) in conformity with accounting principles generally accepted and the time that the Fund calculates its net asset value in the United States of America requires management to make (generally, the close of the NYSE) that may impact the estimates and assumptions that affect the reported amounts of value of securities traded in these foreign markets. In assets and liabilities, and disclosure of contingent assets these cases, information from an external vendor may be and liabilities at the date of the financial statements and utilized to adjust closing market prices of certain foreign the reported amount of increases and decreases in net assets common stocks to reflect their fair value. Because the from operations during the reporting period. Actual results frequency of significant events is not predictable, fair could differ from those estimates and those differences could valuation of certain foreign common stocks may occur on a be significant. frequent basis. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market. Investments in underlying money market mutual funds are valued at each fund's closing net asset value.
68 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 The Funds have adopted the provisions of Statement of Financial - Level 1 - quoted prices in active markets for identical Accounting Standards No. 157 ("SFAS 157"). This standard securities clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires - Level 2 - prices determined using other significant additional disclosures about the use of fair value measurements. observable inputs (including quoted prices for similar To increase consistency and comparability in fair value securities, interest rates, prepayment speeds, credit risk, measurements and related disclosures, the Funds utilize a fair etc.) value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. - Level 3 - prices determined using significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The following is a summary of the inputs used to value the Funds' net assets as of March 31, 2009. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. ($ REPORTED IN THOUSANDS) LEVEL 1 - LEVEL 2 - LEVEL 3 - QUOTED SIGNIFICANT SIGNIFICANT FUNDS PRICES OBSERVABLE INPUTS UNOBSERVABLE INPUTS TOTAL ------- --------- ----------------- ------------------- -------- ASSETS: INVESTMENTS IN SECURITIES (MARKET VALUE) ---------------------------------------- All-Cap Growth Fund ............................................. $ 46,615 $ -- $ -- $ 46,615 Growth & Income Fund ............................................ 127,176 -- -- 127,176 Growth Opportunities Fund ....................................... 18,541 -- -- 18,541 Income & Growth Fund ............................................ 89,709 82,729 818 173,256 Mid-Cap Growth Fund ............................................. 61,163 -- -- 61,163 Quality Small-Cap Fund .......................................... 58,180 -- -- 58,180 Small-Cap Core Fund ............................................. 32,060 -- -- 32,060 Small-Cap Growth Fund ........................................... 47,208 -- -- 47,208 Small-Cap Sustainable Growth Fund ............................... 8,294 -- -- 8,294 Strategic Growth Fund ........................................... 78,411 -- -- 78,411 Value Opportunities Fund ........................................ 47,278 -- -- 47,278 The following is a reconciliation of assets for the Income & Growth Fund of Level 3 investments for which significant unobservable inputs were used to determine fair value: INVESTMENTS IN SECURITIES MARKET VALUE ------------------------- BALANCE AS OF MARCH 31, 2008 ................................. $ 4,839 Accrued discounts/premiums ................................... 4 Realized gain (loss) ......................................... (642) Change in unrealized appreciation (depreciation)(1) ............................. (6) Net purchases (sales) ........................................ (2,513) Transfers in and/or out of Level 3(2) ........................ (864) ------- BALANCE AS OF MARCH 31, 2009 ................................. $ 818 ======= (1) Disclosed in the Statements of Operations under Net realized and unrealized gain (loss) on investments. (2) "Transfers in and/or out of Level 3" represent the ending values as of March 31, 2009, for any investment securities where a change in the pricing level occurred from the beginning to the end of the period. Level 3 securities have been determined either based on the availability of only a single broker source, which may or may not be a principal market maker, or internally fair valued securities without active markets or market participants.
69 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 B. SECURITY TRANSACTIONS AND RELATED INCOME: F. FOREIGN CURRENCY TRANSLATION: Security transactions are recorded on the trade date. Foreign securities and other assets and liabilities are Dividend income is recorded on the ex-dividend date, or in valued using the foreign currency exchange rate effective the case of certain foreign securities, as soon as the Fund at the end of the reporting period. Cost of investments is is notified. Interest income is recorded on the accrual translated at the currency exchange rate effective at the basis. Each Fund amortizes premiums and accretes discounts trade date. The gain or loss resulting from a change in using the effective interest method. Realized gains and currency exchange rates between the trade and settlement losses are determined on the identified cost basis. date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss Dividend income is recorded using management's estimate of resulting from a change in currency exchange rates between the income included in distributions received from REIT the date income is accrued and the date it is paid is investments. Distributions received in excess of this treated as a gain or loss on foreign currency. The Trust estimated amount are recorded as a reduction of the cost of does not isolate that portion of the results of operations investments or reclassified to capital gains. The actual arising from changes in exchange rates or from amounts of income, return of capital, and capital gains are fluctuations which arise due to changes in the market only determined by each REIT after its fiscal year-end, and prices of securities. may differ from the estimated amounts. G. FORWARD CURRENCY CONTRACTS: C. INCOME TAXES: Certain Funds may enter into forward currency contracts in Each Fund is treated as a separate taxable entity. It is the conjunction with the planned purchase or sale of foreign policy of each Fund in the Trust to comply with the denominated securities in order to hedge the U.S. dollar requirements of Subchapter M of the Internal Revenue Code and cost or proceeds. Forward currency contracts involve, to to distribute substantially all of its taxable income to its varying degrees, elements of market risk in excess of the shareholders. Therefore, no provision for federal income amounts recognized in the Statements of Assets and taxes or excise taxes has been made. Liabilities. Risks arise from the possible movements in foreign exchange rates or if the counterparty does not The Trust may be subject to foreign taxes on income, gains on perform under the contract. investments or currency repatriation, a portion of which may be recoverable. Each Fund will accrue such taxes and A forward currency contract involves an obligation to recoveries as applicable based upon current interpretations purchase or sell a specific currency at a future date, of the tax rules and regulations that exist in the markets in which may be any number of days from the date of the which they invest. contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly FASB Interpretation No. 48 ("FIN 48"), Accounting for between currency traders and their customers. The contract Uncertainty in Income Taxes, sets forth a minimum threshold is marked-to-market daily and the change in market value for financial statement recognition of the benefit of a tax is recorded by each Fund as an unrealized gain or loss. position taken or expected to be taken in a tax return. When the contract is closed or offset with the same Management has analyzed each Fund's tax positions and has counterparty, the Fund records a realized gain or loss concluded that no provision for income tax is required in any equal to the change in the value of the contract when it Fund's financial statements. No Fund is aware of any tax was opened and the value at the time it was closed or positions for which it is reasonably possible that the total offset. amounts of unrecognized tax benefits will significantly change in the next twelve months. Each of the Funds' federal There were no open forward currency contracts at March 31, tax returns for the prior three fiscal years remains subject 2009. to examination by the Internal Revenue Service. H. LOAN AGREEMENTS: D. DISTRIBUTIONS TO SHAREHOLDERS: Certain Funds may invest in direct debt instruments which Distributions are recorded by each Fund on the ex-dividend are interests in amounts owed by a corporate, date. Income and capital gain distributions are determined in governmental, or other borrower to lenders or lending accordance with income tax regulations which may differ from syndicates. A Fund's investments in loans may be in the accounting principles generally accepted in the United States form of participations in loans or assignments of all or a of America. These differences may include the treatment of portion of loans from third parties. A loan is often non-taxable dividends, market premium and discount, administered by a bank or other financial institution (the non-deductible expenses, expiring capital loss carryovers, lender) that acts as agent for all holders. The agent foreign currency gain or loss, gain or loss on futures administers the terms of the loan, as specified in the contracts, partnerships, operating losses and losses deferred loan agreement. When investing in a loan participation, due to wash sales. Permanent book and tax basis differences the Fund has the right to receive payments of principal, relating to shareholder distributions will result in interest and any fees to which it is entitled only from reclassifications to capital paid in on shares of beneficial the lender selling the loan agreement and only upon interest. receipt by the lender of payments from the borrower. E. EXPENSES: The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a Expenses incurred by the Trust with respect to more than one result, the Fund may be subject to the credit risk of both Fund are allocated in proportion to the net assets of each the borrower and the lender that is selling the loan Fund, except where allocation of direct expenses to each fund agreement. When the Fund purchases assignments from or an alternative allocation method can be more appropriately lenders it acquires direct rights against the borrower on made. the loan. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due. Currently, the Income & Growth Fund only holds assignment loans.
70 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 I. SECURITIES LENDING: if the seller enters insolvency proceedings, realization Certain Funds may loan securities to qualified brokers of collateral may be delayed. through an agreement with State Street Bank and Trust Company (the "Custodian"). Under the terms of the agreement, the 3. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS ($ Funds are required to maintain collateral with a market value REPORTED IN THOUSANDS EXCEPT AS NOTED) not less than 100% of the market value of loaned securities. At end of business December 31, 2008, Virtus Investment Collateral is adjusted daily in connection with changes in Partners, Inc. ("Virtus") spun off from The Phoenix the market value of securities on loan. Collateral may Companies, Inc. ("PNX"), into an independent publicly consist of cash and securities issued by the U.S. Government. traded company which, through its affiliates, provides asset Cash collateral is invested in a short-term money market management and related services to individuals and fund. Dividends earned on the collateral and premiums paid by institutions. Virtus Investment Advisers, Inc. ("VIA", the the borrower are recorded as income by the Fund net of fees "Adviser", formerly known as Phoenix Investment Counsel, charged by the Custodian for its services in connection with Inc.) and VP Distributors, Inc. ("VP Distributors", formerly this securities lending program. Lending portfolio securities known as Phoenix Equity Planning Corporation) are indirect, involves a risk of delay in the recovery of the loaned wholly-owned subsidiaries of Virtus. Due to the spin-off, securities or in the foreclosure on collateral. the asset management subsidiaries have changed their names to reflect the Virtus brand. As of the close of business on September 18, 2008, Lehman Brothers Holding Inc. was in default of the securities As compensation for its services to the Trust, the lending agreement with the Mid-Cap Growth Fund and the Adviser, is entitled to a fee based upon the following Small-Cap Core Fund (formerly the Small-Mid Cap Fund) (the annual rates as a percentage of the average daily net "Funds"). As a result, State Street Bank and Trust Company as assets of each Fund: Securities Lending Agent took possession of the collateral and repurchased the securities in the Funds through open market purchases. Under Statement of Financial Accounting FIRST NEXT OVER Standards No. 140, Accounting for Transfers and Servicing of $50 $450 $500 Financial Assets and Extinguishments of Liabilities ("FAS MILLION MILLION MILLION 140"), the criteria for sales accounting have been met. As a ------- ---------- ------- result of recording the sale of the original securities out All-Cap Growth Fund........... 0.90% 0.80% 0.70% on loan at market value and the repurchase of the identical Small-Cap Growth Fund......... 1.00% 0.90% 0.80% securities into the Funds at replacement value, the Funds had $ 400+ realized losses as stated below, which did not have an impact on the financial statements or net asset values of the Funds. FIRST MILLION The transactions are being treated as non-taxable events. $400 THROUGH $1+ MILLION $1 BILLION BILLION REALIZED ------- ---------- ------- GAIN (LOSS) Quality Small-Cap Fund........ 0.90% 0.85% 0.80% FUND ($ REPORTED IN THOUSANDS) Small-Cap Sustainable Growth.. 0.90% 0.85% 0.80% ---- ------------------------- Mid-Cap Growth Fund ............ $ (30) FIRST OVER Small-Cap Core Fund ............ (116) $500 $500 MILLION MILLION As of March 31, 2009, the Funds had no securities on loan. ---------- ------- Mid-Cap Growth Fund........... 0.80% 0.70% J. REPURCHASE AGREEMENTS: A repurchase agreement is a transaction where a Fund acquires $1+ a security for cash and obtains a simultaneous commitment FIRST BILLION from the seller to repurchase the security at an agreed upon $1 THROUGH $2+ price and date. Each Fund, through its custodian, takes BILLION $2 BILLION BILLION possession of securities collateralizing the repurchase ------- ---------- ------- agreement. The collateral is marked-to-market daily to ensure Growth & Income Fund.......... 0.75% 0.70% 0.65% that the market value of the underlying assets remains Growth Opportunities Fund..... 0.75% 0.70% 0.65% sufficient to protect the Fund in the event of default by the Income & Growth Fund.......... 0.70% 0.65% 0.60% seller. If the seller defaults and the value of the Small-Cap Core Fund........... 0.85% 0.85% 0.85% collateral declines, or Strategic Growth Fund......... 0.70% 0.65% 0.60% Value Opportunities Fund...... 0.75% 0.70% 0.65% At March 31, 2009, there were no repurchase agreements held. The Adviser has voluntarily agreed to limit total Fund operating expenses (excluding interest, taxes and extraordinary expenses) so that such expenses do not exceed the following percentages of the average annual net asset values for the following Funds. The voluntary agreement may be discontinued with respect to any and all Funds at any time. CLASS A CLASS B CLASS C CLASS I ------- ------- ------- ------- Growth & Income Fund ........................................................... 1.25% 2.00% 2.00% 1.00% Growth Opportunities Fund ...................................................... 1.25% N/A 2.00% 1.00% Mid-Cap Growth Fund ............................................................ 1.45% 2.20% 2.20% 1.20% Quality Small-Cap Fund(1) ...................................................... 1.55% N/A 2.30% 1.30% Small-Cap Growth Fund(2) ....................................................... 1.67% 2.42% 2.42% N/A Small-Cap Sustainable Growth Fund(1) ........................................... 1.65% N/A 2.40% 1.40% Value Opportunities Fund ....................................................... 1.35% N/A 2.10% 1.10% (1) FOR THE PERIOD APRIL 1, 2008 THROUGH DECEMBER 14, 2008, THE VOLUNTARY EXPENSE CAP WAS AS FOLLOWS: CLASS A 1.40%, CLASS C 2.15%, CLASS I 1.15% (2) EFFECTIVE JANUARY 1, 2009. PRIOR TO THIS DATE, THE FUND DID NOT HAVE AN EXPENSE CAP.
71 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 Effective August 23, 2007, the Adviser may recapture operating The Adviser manages the Funds' investment program and general expenses waived or reimbursed under this arrangement, within operations of the Funds, including oversight of the Funds' three fiscal years following the end of the fiscal year in which subadvisers. The subadvisers manage the investments of the such waiver or reimbursement occurred. Each Fund must pay its Funds for which they are paid a fee by the Adviser. The ordinary operating expenses before the Adviser is entitled to any subadvisers with respect to the Funds are indicated as reimbursement and must remain in compliance with applicable follows: expense limitations. All or a portion of the following Adviser reimbursed expenses may be recaptured by the fiscal years ending: FUND SUBADVISER ---- ---------- EXPIRATION DATE All-Cap Growth Fund ............................... EAM*(2) -------------------------- Growth Opportunities Fund ......................... Turner(7) 2010 2011 2012 TOTAL Income & Growth Fund (Fixed Income Portfolio)** ... Goodwin(3) ---- ---- ---- ----- Mid-Cap Growth Fund ............................... HIM(4) Growth & Income Fund .................. $ 7 $229 $347 $583 Quality Small-Cap Fund ............................ KAR*(5) Growth Opportunities Fund ............. 16 46 108 170 Small-Cap Core Fund ............................... KAR*(5) Mid-Cap Growth Fund ................... -- 57 136 193 Small-Cap Growth Fund ............................. EAM*(2) Quality Small-Cap Fund ................ 9 40 244 293 Small-Cap Sustainable Growth Fund ................. KAR*(5) Small-Cap Growth Fund ................. -- -- 68 68 Strategic Growth Fund ............................. SCM*(6) Small-Cap Sustainable Value Opportunities Fund .......................... Acadian(1) Growth Fund .......................... 8 28 73 109 Value Opportunities Fund .............. -- -- 79 79 (1) Acadian Asset Management LLC (2) Engemann Asset Management (3) Goodwin Capital Advisers, Inc. (4) Harris Investment Management, Inc. (a subsidiary of Harris Bankcorp, Inc., a minority investor in Virtus) (5) Kayne Anderson Rudnick Investment Management, LLC (6) SCM Advisors LLC (7) Turner Investment Partners, Inc. * an affiliate of Virtus ** See Note 15. As distributor of each Fund's shares, VP Distributors has advised the Funds that it retained net selling commissions and deferred sales charges for the fiscal year (the "period") ended March 31, 2009, as follows: CLASS A - CLASS A - CLASS B CLASS C NET SELLING DEFERRED DEFERRED DEFERRED COMMISSIONS SALES CHARGES SALES CHARGES SALES CHARGES ----------- ------------- ------------- ------------- All-Cap Growth Fund .................................................. 3 --* 6 --* Growth & Income Fund ................................................. 6 -- 17 --* Growth Opportunities Fund ............................................ 2 -- -- --* Income & Growth Fund ................................................. 6 -- 8 -- Mid-Cap Growth Fund .................................................. 13 -- 8 -- Quality Small-Cap Fund ............................................... 2 -- -- 1 Small-Cap Growth Fund ................................................ 4 -- 8 1 Small-Cap Sustainable Growth Fund .................................... 1 -- -- --* Small-Cap Core Fund .................................................. --* -- 2 6 Strategic Growth Fund ................................................ 5 --* 6 --* Value Opportunities Fund ............................................. 9 -- -- 1 * AMOUNT IS LESS THAN $500 (NOT REPORTED IN THOUSANDS). In addition, each Fund pays VP Distributors distribution VP Distributors serves as the Administrator to the Trust. For and/or service fees at an annual rate of 0.25% for Class A its services, which include financial agent services, VP shares, 1.00% for Class B shares and 1.00% for Class C shares Distributors receives an administration fee at an annual rate applied to the average daily net assets of each respective of 0.09% of the first $5 billion, 0.08% on the next $10 Class. billion, and 0.07% over $15 billion of the average net assets across all non-money market Virtus Mutual Funds and certain Under certain circumstances, shares of certain Virtus Mutual other funds. For the period ended March 31, 2009, the Trust Funds may be exchanged for shares of the same class of incurred administration fees totaling $834. certain other Virtus Mutual Funds on the basis of the relative net asset values per share at the time of the VP Distributors also serves as the Trust's transfer agent. For exchange. On exchanges with share classes that carry a the fiscal period ended March 31, 2009, transfer agent fees contingent deferred sales charge, the CDSC schedule of the were $2,440 as reported in the Statements of Operations. original shares purchased continues to apply.
72 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 At March 31, 2009, Virtus and its affiliates, the retirement Until March 1, 2007, the Trust provided a deferred plans of Virtus and its affiliates, and Virtus affiliated compensation plan to its Trustees who were not officers of Funds held shares of the Funds which may be redeemed at any Virtus. Under the deferred compensation plan, Trustees were time that aggregated the following: able to elect to defer all or a portion of their compensation. Amounts deferred were retained by the Fund, and AGGREGATE to the extent permitted by the 1940 Act, could have been SHARES NET ASSETS invested in the shares of those Virtus Mutual Funds selected --------- ----------- by the Trustees. At March 31, 2009, all deferred amounts were Growth & Income Fund paid to the Trustees. Class A ...................... 946,157 $ 9,603 Growth Opportunities Fund 4. PURCHASES AND SALES OF SECURITIES Class A ...................... 669,911 5,379 ($ REPORTED IN THOUSANDS) Class I ...................... 6,882 55 Mid-Cap Growth Fund Purchases and sales of investments securities (excluding U.S. Class A ...................... 49,329* 436 Government and agency securities, short-term securities and Class I ...................... 1,245* 11 forward currency contracts) during the period ended March 31, Quality Small-Cap Fund 2009, were as follows: Class A ...................... 286,754 1,804 Class I ...................... 208,385 1,311 PURCHASES SALES Small-Cap Growth Fund --------- -------- Class A ...................... 109,551 1,866 All-Cap Growth Fund ........ $ 74,047 $ 80,316 Small-Cap Sustainable Growth Fund Growth & Income Fund ....... 216,371 256,675 Class A ...................... 293,631 1,821 Growth Opportunities Fund .. 60,842 65,249 Class C ...................... 10,000 61 Income & Growth Fund ....... 158,069 177,877 Value Opportunities Fund Mid-Cap Growth Fund ........ 85,184 97,615 Class A ...................... 1,616,381 10,216 Quality Small-Cap Fund ..... 38,173 9,272 Class I ...................... 9,142 58 Small-Cap Core Fund ........ 44,194 57,884 Small-Cap Growth Fund ...... 125,114 141,815 * SHARES HELD BY HARRIS BANKCORP, INC., A MINORITY INVESTOR Small-Cap Sustainable IN VIRTUS AND AN AFFILIATE OF HARRIS INVESTMENT Growth Fund ............. 9,167 8,225 MANAGEMENT, INC., SUBADVISER TO THE MID-CAP GROWTH FUND. Strategic Growth Fund ...... 105,828 121,447 Value Opportunities Fund ... 99,889 117,590 The Income & Growth Fund had purchases of $23,246 and sales of $26,822 of long-term U.S. Government and agency securities during the period ended March 31, 2009. 5. CAPITAL SHARE TRANSACTIONS (REPORTED IN THOUSANDS) Transactions in shares of capital stock, during the periods ended as indicated below, were as follows:
----------------- ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ------ -------- ----------------- ----------------- ----------------- ------------------- 4/1/08 - 1/1/08 - 1/1/07 - ALL-CAP GROWTH FUND 3/31/09 3/31/08 12/31/07 ------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 250 $ 2,708 65 $ 867 467 $ 7,241 Reinvestment of distributions 153 1,994 -- -- 745 10,950 Shares repurchased (1,014) (9,827) (288) (3,730) (1,546) (25,262) ------ ------- ---- ------- ------ -------- Net increase/(decrease) (611) $(5,125) (223) $(2,863) (334) $ (7,071) ====== ======== ===== ======== ====== ======== CLASS B Sale of shares 61 $ 494 18 $ 189 102 $ 1,437 Reinvestment of distributions 14 148 -- -- 78 943 Shares repurchased (199) (1,644) (102) (1,094) (238) (3,305) ------ ------- ---- ------- ------ -------- Net increase/(decrease) (124) $(1,002) (84) $ (905) (58) $ (925) ====== ======== ===== ======== ====== ======== CLASS C Sale of shares 201 $ 1,855 25 $ 276 120 $ 1,620 Reinvestment of distributions 15 160 -- -- 66 785 Shares repurchased (153) (1,081) (43) (451) (175) (2,408) ------ ------- ---- ------- ------ -------- Net increase/(decrease) 63 $ 934 (18) $ (175) 11 $ (3) ====== ======== ===== ======== ====== ========
----------------- ----------------- ----------------- -------------------- 4/1/08 - 9/1/07 - 9/1/06 - GROWTH & INCOME FUND 3/31/09 3/31/08 8/31/07 -------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 984 $ 12,176 517 $ 9,287 1,909 $ 33,944 Reinvestment of distributions 95 1,284 21 397 95 1,668 Plan of Reorganization (Note 10) -- -- 309 5,597 -- -- Shares repurchased (2,598) (34,224) (1,157) (20,597) (2,124) (37,243) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (1,519) $(20,764) (310) $ (5,316) (120) $ (1,631) ====== ======== ===== ======== ====== ========
73 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009
----------------- ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ------ -------- ----------------- ----------------- ----------------- -------------------------------- 4/1/08 - 9/1/07 - 9/1/06 - GROWTH & INCOME FUND (CONTINUED) 3/31/09 3/31/08 8/31/07 -------------------------------- ----------------- ----------------- ----------------- CLASS B Sale of shares 50 $ 625 41 $ 700 115 $ 1,935 Reinvestment of distributions -- -- 2 26 4 64 Plan of Reorganization (Note 10) -- -- 74 1,285 -- -- Shares repurchased (475) (6,298) (486) (8,279) (1,433) (23,996) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (425) $ (5,673) (369) $ (6,268) (1,314) $(21,997) ====== ======== ===== ======== ====== ======== CLASS C Sale of shares 75 $ 931 47 $ 819 83 $ 1,395 Reinvestment of distributions 1 9 3 53 6 97 Plan of Reorganization (Note 10) -- -- 76 1,319 -- -- Shares repurchased (606) (7,478) (292) (4,965) (735) (12,276) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (530) $ (6,538) (166) $ (2,774) (646) $(10,784) ====== ======== ===== ======== ====== ======== CLASS I Sale of shares 80 $ 922 10 $ 179 -- $ -- Reinvestment of distributions 12 169 -- -- -- -- Plan of Reorganization (Note 10) -- -- 1,954 35,381 -- -- Shares repurchased (476) (6,918) (588) (10,055) -- -- ------ -------- ------ -------- ------ -------- Net increase/(decrease) (384) $ (5,827) 1,376 $ 25,505 -- $ -- ====== ======== ===== ======== ====== ========
----------------- ----------------- ----------------- ------------------------- 4/1/08 - 10/1/07 - 10/1/06 - GROWTH OPPORTUNITIES FUND 3/31/09 3/31/08 9/30/07 ------------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 745 $ 9,548 1,199 $ 18,972 1,933 $ 27,278 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (1,304) (12,630) (597) (9,227) (477) (6,647) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (559) $ (3,082) 602 $ 9,745 1,456 $ 20,631 ====== ======== ====== ======== ====== ======== CLASS C Sale of shares 22 $ 255 255 $ 4,118 325 $ 4,817 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (181) (2,109) (316) (4,474) (8) (130) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (159) $ (1,854) (61) $ (356) 317 $ 4,687 ====== ======== ====== ======== ====== ======== CLASS I(1) Sale of shares 8 $ 107 -- $ -- -- $ -- Reinvestment of distributions -- -- -- -- -- -- Shares repurchased -- -- -- -- -- -- ------ -------- ------ -------- ------ -------- Net increase/(decrease) 8 $ 107 -- $ -- -- $ -- ====== ======== ====== ======== ====== ========
(1) Inception date is June 6, 2008.
----------------- ----------------- ----------------- -------------------- 4/1/08 - 5/1/07 - 5/1/06 - INCOME & GROWTH FUND 3/31/09 3/31/08 4/30/07 -------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 325 $ 2,428 356 $ 3,367 547 $ 5,117 Reinvestment of distributions 937 7,015 2,255 20,598 1,251 11,736 Shares repurchased (4,576) (33,758) (3,961) (37,581) (5,976) (55,835) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (3,314) $(24,315) (1,350) $(13,616) (4,178) $(38,982) ====== ======== ====== ======== ====== ======== CLASS B Sale of shares 30 $ 225 66 $ 624 33 $ 315 Reinvestment of distributions 14 104 46 420 31 295 Shares repurchased (254) (1,988) (277) (2,649) (534) (4,996) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (210) $ (1,659) (165) $ (1,605) (470) $ (4,386) ====== ======== ====== ======== ====== ======== CLASS C Sale of shares 21 $ 145 79 $ 720 10 $ 99 Reinvestment of distributions 3 26 11 101 7 66 Shares repurchased (111) (941) (47) (451) (53) (507) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (87) $ (770) 43 $ 370 (36) $ (342) ====== ======== ====== ======== ====== ========
74 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009
----------------- ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ------ -------- ----------------- ----------------- ----------------- ------------------- 4/1/08 - 11/1/07 - 11/1/06 - MID-CAP GROWTH FUND 3/31/09 3/31/08 10/31/07 ------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 406 $ 4,721 181 $ 2,905 610 $ 10,807 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization -- -- -- -- 673 11,960 Shares repurchased (1,058) (13,070) (616) (9,912) (1,841) (31,824) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (652) $ (8,349) (435) $(7,007) (558) $ (9,057) ====== ======== ===== ======= ====== ======== CLASS B Sale of shares 44 $ 465 19 $ 267 92 $ 1,419 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization -- -- -- -- 489 7,717 Shares repurchased (365) (3,914) (173) (2,462) (307) (4,798) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (321) $ (3,449) (154) $(2,195) 274 $ 4,338 ====== ======== ===== ======= ====== ======== CLASS C Sale of shares 20 $ 168 60 $ 907 35 $ 555 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization -- -- -- -- 390 6,155 Shares repurchased (127) (1,442) (58) (815) (32) (505) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (107) $ (1,274) 2 $ 92 393 $ 6,205 ====== ======== ===== ======= ====== ======== CLASS I Sale of shares 17 $ 161 --(1) $ 3 6 $ 108 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization -- -- -- -- 115 2,029 Shares repurchased (30) (273) (17) (258) (5) (80) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (13) $ (112) (17) $ (255) 116 $ 2,057 ====== ======== ===== ======= ====== ========
(1) Shares fewer than 500.
----------------- ----------------- ----------------- ---------------------- 4/1/08 - 9/1/07 - 9/1/06 - QUALITY SMALL-CAP FUND 3/31/09 3/31/08 8/31/07 ---------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 3,361 $ 23,505 690 $ 7,575 730 $ 8,553 Reinvestment of distributions 22 180 9 102 -- 1 Shares repurchased (953) (7,251) (138) (1,522) (16) (185) ------ -------- ----- ------- ------ -------- Net increase/(decrease) 2,430 $ 16,434 561 $ 6,155 714 $ 8,369 ====== ======== ===== ======= ======= ======== CLASS C Sale of shares 81 $ 692 126 $ 1,443 105 $ 1,223 Reinvestment of distributions 2 16 --(1) 5 -- -- Shares repurchased (73) (533) (23) (276) (3) (32) ------ -------- ----- ------- ------ -------- Net increase/(decrease) 10 $ 175 103 $ 1,172 102 $ 1,191 ====== ======== ===== ======= ====== ======== CLASS I Sale of shares 3,836 $ 34,591 4,280 $46,326 855 $ 9,903 Reinvestment of distributions 121 996 21 232 1 16 Shares repurchased (3,461) (27,168) (379) (3,972) (54) (620) ------ -------- ----- ------- ------ -------- Net increase/(decrease) 496 $ 8,419 3,922 $42,586 802 $ 9,299 ====== ======== ===== ======= ====== ========
(1) Shares fewer than 500.
----------------- ----------------- ----------------- ------------------- 4/1/08 - 1/1/08 - 1/1/07 - SMALL-CAP CORE FUND 3/31/09 3/31/08 12/31/07 ------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 160 $ 1,828 40 $ 658 190 $ 3,746 Reinvestment of distributions 125 1,740 -- -- 149 2,703 Shares repurchased (548) (6,771) (147) (2,309) (579) (11,423) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (263) $ (3,203) (107) $(1,651) (240) $ (4,974) ====== ======== ===== ======= ====== ======= CLASS B Sale of shares 6 $ 66 1 $ 8 14 $ 267 Reinvestment of distributions 10 127 -- -- 13 223 Shares repurchased (49) (609) (14) (217) (59) (1,116) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (33) $ (416) (13) $ (209) (32) $ (626) ====== ======== ===== ======= ====== ========
75 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009
----------------- ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ------ -------- ----------------- ----------------- ----------------- ------------------------------- 4/1/08 - 1/1/08 - 1/1/07 - SMALL-CAP CORE FUND (CONTINUED) 3/31/09 3/31/08 12/31/07 ------------------------------- ----------------- ----------------- ----------------- CLASS C Sale of shares 65 $ 686 4 $ 62 93 $ 1,747 Reinvestment of distributions 33 434 -- -- 43 751 Shares repurchased (221) (2,595) (57) (865) (236) (4,478) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (123) $ (1,475) (53) $ (803) (100) $ (1,980) ====== ======== ===== ======= ====== ======== CLASS I Sale of shares 755 $ 8,235 28 $ 461 136 $ 2,730 Reinvestment of distributions 189 2,695 -- -- 242 4,464 Shares repurchased (1,246) (13,835) (270) (4,322) (1,228) (24,465) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (302) $ (2,905) (242) $(3,861) (850) $(17,271) ====== ======== ===== ======= ====== ========
----------------- ----------------- ----------------- --------------------- 4/1/08 - 1/1/08 - 1/1/07 - SMALL-CAP GROWTH FUND 3/31/09 3/31/08 12/31/07 --------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 223 $ 5,428 65 $ 2,093 219 $ 8,088 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (607) (14,130) (165) (5,240) (951) (34,952) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (384) $ (8,702) (100) $(3,147) (732) $(26,864) ====== ======== ===== ======= ====== ======== CLASS B Sale of shares 17 $ 363 4 $ 114 28 $ 950 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (241) (5,396) (76) (2,246) (319) (10,786) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (224) $ (5,033) (72) $(2,132) (291) $ (9,836) ====== ======== ===== ======= ====== ======== CLASS C Sale of shares 6 $ 140 1 $ 38 20 $ 673 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (125) (2,747) (36) (1,085) (152) (5,113) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (119) $ (2,607) (35) $(1,047) (132) $ (4,440) ====== ======== ===== ======= ====== ========
----------------- ----------------- ----------------- --------------------------------- 4/1/08 - 9/1/07 - 9/1/06 - SMALL-CAP SUSTAINABLE GROWTH FUND 3/31/09 3/31/08 8/31/07 --------------------------------- ----------------- ----------------- ----------------- CLASS A Sale of shares 455 $ 4,243 145 $ 1,427 1,023 $ 10,527 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (1,029) (8,332) (207) (2,057) (45) (463) ------ -------- ----- ------- ------ -------- Net increase/(decrease) (574) $ (4,089) (62) $ (630) 978 $ 10,064 ====== ======== ===== ======= ====== ======== CLASS C Sale of shares 20 $ 167 5 $ 52 7 $ 71 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (13) (88) (2) (19) -- -- ------ -------- ----- ------- ------ -------- Net increase/(decrease) 7 $ 79 3 $ 33 7 $ 71 ====== ======== ===== ======= ====== ======== CLASS I Sale of shares 1,221 $ 9,609 123 $ 1,221 544 $ 5,578 Reinvestment of distributions -- -- -- -- -- -- Shares repurchased (899) (5,853) (74) (754) (35) (362) ------ -------- ----- ------- ------ -------- Net increase/(decrease) 322 $ 3,756 49 $ 467 509 $ 5,216 ====== ======== ===== ======= ====== ========
76 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009
------------------ ----------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------ -------- ------ -------- ------ -------- ------------------ ----------------- ----------------- --------------------- 4/1/08 - 5/1/07 - 5/1/06 - STRATEGIC GROWTH FUND 3/31/09 3/31/08 4/30/07 --------------------- ------------------ ----------------- ----------------- CLASS A Sale of shares 306 $ 2,357 614 $ 6,059 305 $ 2,840 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization (Note 10) -- -- -- -- 8,665 81,385 Shares repurchased (2,012) (14,759) (2,761) (28,148) (3,718) (35,194) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (1,706) $(12,402) (2,147) $(22,089) 5,252 $ 49,031 ====== ======== ====== ======== ====== ======== CLASS B Sale of shares 41 $ 280 37 $ 338 43 $ 365 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization (Note 10) -- -- -- -- 737 6,239 Shares repurchased (313) (2,140) (407) (3,755) (563) (4,831) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (272) $ (1,860) (370) $ (3,417) 217 $ 1,773 ====== ======== ====== ======== ====== ======== CLASS C Sale of shares 19 $ 119 25 $ 225 17 $ 146 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization (Note 10) -- -- -- -- 503 4,267 Shares repurchased (117) (744) (137) (1,267) (149) (1,282) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (98) $ (625) (112) $ (1,042) 371 $ 3,131 ====== ======== ====== ======== ====== ======== CLASS I Sale of shares 16 $ 109 7 $ 77 14 $ 134 Reinvestment of distributions -- -- -- -- -- -- Plan of Reorganization (Note 10) -- -- -- -- 1,112 10,446 Shares repurchased (75) (473) (131) (1,352) (406) (3,957) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (59) $ (364) (124) $ (1,275) 720 $ 6,623 ====== ======== ====== ======== ====== ========
------------------ ----------------- ----------------- ------------------------ 4/1/08 - 7/1/07 - 7/1/06 - VALUE OPPORTUNITIES FUND 3/31/09 3/31/08 6/30/07 ------------------------ ------------------ ----------------- ----------------- CLASS A Sale of shares 1,003 $ 8,140 1,331 $ 17,217 4,021 $ 50,012 Reinvestment of distributions 44 338 153 1,900 19 225 Plan of Reorganization (Note 10) -- -- 2,769 39,206 -- -- Plan of Reorganization (Note 10) -- -- 2,309 26,352 -- -- Shares repurchased (2,643) (23,963) (1,672) (20,903) (619) (8,213) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (1,596) $(15,485) 4,890 $ 63,772 3,421 $ 42,024 ====== ======== ====== ======== ====== ======== CLASS C Sale of shares 104 $ 641 88 $ 1,130 71 $ 906 Reinvestment of distributions --(1) 3 17 210 1 12 Plan of Reorganization (Note 10) -- -- 693 9,749 -- -- Plan of Reorganization (Note 10) -- -- 170 1,930 -- -- Shares repurchased (484) (4,219) (191) (2,293) (5) (63) ------ -------- ------ -------- ------ -------- Net increase/(decrease) (380) $ (3,575) 777 $ 10,726 67 $ 855 ====== ======== ====== ======== ====== ======== CLASS I(2) Sale of shares 9 $ 100 -- $ -- -- $ -- Reinvestment of distributions --(1) 1 -- -- -- -- Shares repurchased -- -- -- -- -- -- ------ -------- ------ -------- ------ -------- Net increase/(decrease) 9 $ 101 -- $ -- -- $ -- ====== ======== ====== ======== ====== ========
(1) Shares fewer than 500. (2) Inception date is June 6, 2008. 77 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 6. 10% SHAREHOLDERS 9. REGULATORY EXAMS At March 31, 2009, the Funds had individual shareholder Federal and state regulatory authorities from time to time accounts and/or omnibus shareholder accounts (comprised of a make inquiries and conduct examinations regarding compliance group of individual shareholders), which amounted to more by Virtus (and, prior to the spin-off described in Note 3, than 10% of the total shares outstanding of the Funds as PNX) and its subsidiaries (collectively "the Company") with detailed below. securities and other laws and regulations affecting their registered products. NUMBER OF % OF SHARES ACCOUNTS There are currently no such matters which the Company ----------- --------- believes will be material to these financial statements. All-Cap Growth Fund ........ 24% 1 Growth Opportunities Fund .. 21 1* 10. PLANS OF REORGANIZATION Quality Small-Cap Fund ..... 16 1 (ALL AMOUNTS EXCEPT FOR PER SHARE AMOUNTS ARE REPORTED IN Small-Cap Sustainable ...... THOUSANDS) Growth Fund ............... 71 2* Value Opportunities Fund ... 15 1* On February 22, 2008, the Value Opportunities Fund ("Value Opportunities") acquired all of the net assets of Phoenix * INCLUDES SHAREHOLDER ACCOUNT AFFILIATED WITH VIRTUS. Focused Value Fund ("Focused Value") pursuant to an Agreement and Plan of Reorganization provided to shareholders in a 7. CREDIT RISK AND ASSET CONCENTRATIONS Prospectus/Information Statement on December 11, 2007. The acquisition was accomplished by a tax-free exchange of 2,309 In countries with limited or developing markets, investments Class A shares and 170 Class C shares of Value Opportunities may present greater risks than in more developed markets and (valued at $26,352 and $1,930, respectively) for 1,632 Class the prices of such investments may be volatile. The A shares, 125 and Class C shares of Focused Value outstanding consequences of political, social or economic changes in on February 22, 2008. Focused Value had net assets on that these markets may have disruptive effects on the market date of $28,282 including $1,855 of net unrealized prices of these investments and the income they generate, as depreciation which were combined with those of Value well as a Fund's ability to repatriate such amounts. Opportunities. The aggregate net assets of Value Opportunities immediately after the merger were $110,025. The High-yield/high-risk securities typically entail greater shareholders of each class of Focused Value received for each price volatility and/or principal and interest rate risk. share owned approximately 1.42 and 1.37 shares, respectively, There is a greater chance that an issuer will not be able to of Class A and Class C shares of Value Opportunities. make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield securities may be On November 16, 2007, the Growth & Income Fund ("Growth & complex, and as a result, it may be more difficult for the Income") acquired all of the net assets of Phoenix Rising Adviser and/or Subadviser to accurately predict risk. Dividends Fund ("Rising Dividends") pursuant to an Agreement and Plan of Reorganization provided to shareholders in a Certain Funds may invest a high percentage of their assets in Prospectus/Information Statement on September 14, 2007. The specific sectors of the market in their pursuit of a greater acquisition was accomplished by a tax-free exchange of 309 investment return. Fluctuations in these sectors of Class A shares, 74 Class B shares, 76 Class C shares, and concentration may have a greater impact on a Fund, positive 1,954 Class I shares of Growth & Income (valued at $5,597, or negative, than if a Fund did not concentrate its $1,285, $1,319 and $35,381, respectively) for 384 Class A investments in such sectors. shares, 89 Class B shares, 91 Class C shares, and 2,421 Class I shares of Rising Dividends outstanding on November 16, At March 31, 2009, the Funds listed held securities issued by 2007. Rising Dividends had net assets on that date of $43,581 various companies in specific sectors as detailed below: including $5,106 of net unrealized depreciation which were combined with those of Growth & Income. The aggregate net PERCENTAGE assets of Growth & Income immediately after the merger were OF TOTAL $302,870. The shareholders of each class of Rising Dividends FUND SECTOR INVESTMENTS received for each share owned approximately 0.81, 0.83, 0.83 ---- ---------------------- ----------- and 0.81 shares, respectively, of Class A, Class B, Class C All-Cap and Class I shares of Growth & Income. Growth Fund .......... Information Technology 35% On September 21, 2007, the Mid-Cap Growth Fund ("Mid-Cap Growth Growth") acquired all of the net assets of Phoenix Earnings Opportunities Driven Growth Fund of Phoenix Opportunities Trust ("Earnings Fund .......... Information Technology 40 Driven Growth") pursuant to a reorganization approved by the Quality Board of Trustees of Phoenix Opportunities Trust. The Small-Cap acquisition was accomplished by a tax-free exchange of 673 Fund .......... Industrials 30 Class A shares, 489 Class B shares, 390 Class C shares and Small-Cap 115 Class I shares of Growth Fund .......... Information Technology 29 Small-Cap Sustainable Growth Fund .......... Information Technology 40 Strategic Growth Fund .......... Information Technology 34 8. INDEMNIFICATIONS Under the Funds' organizational documents, their Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, the Funds enter into contracts that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these arrangements.
78 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 Mid-Cap Growth (valued at $11,960, $7,717, $6,155, and On October 6, 2006, the Strategic Growth Fund acquired all of $2,029, respectively) for 605 Class A shares, 422 Class B the net assets of the Phoenix Large-Cap Growth Fund shares, 336 Class C shares and 99 Class I shares of Earnings ("Large-Cap Growth Fund") pursuant to an Agreement and Plan Driven Growth outstanding on September 21, 2007. Earnings of Reorganization approved by the Board of Trustees of the Driven Growth had net assets on that date of $27,861 Strategic Equity Series Fund on August 23, 2006. The including $4,068 of net unrealized appreciation which were acquisition was accomplished by a tax-free exchange of 1,112 combined with those of Mid-Cap Growth. The aggregate net Class X shares, 8,665 Class A shares, 737 Class B shares, and assets of Mid-Cap Growth immediately after the merger were 503 Class C shares of the Large-Cap Growth Fund outstanding $154,830. The shareholders of each class of Earnings Driven on October 6, 2006 (valued at $10,446, $81,385, $6,239, and Growth received for each share owned approximately 1.11, $4,267, respectively) for 827 Class X shares, 6,735 Class A 1.16, 1.16, and 1.16 shares, respectively, of Class A, Class shares, 559 Class B shares and 383 Class C shares of the B, Class C and Class I shares of Mid-Cap Growth. Strategic Growth Fund outstanding on October 6, 2006. The Large-Cap Growth Fund had net assets on that date of $102,337 On July 13, 2007, the Value Opportunities Fund ("Value including $10,792 of net appreciation, which were combined Opportunities") acquired all of the net assets of Phoenix with those of the Strategic Growth Fund. The aggregate net Value Equity Fund ("Value Equity") pursuant to an Agreement assets of Strategic Growth Fund immediately after the merger and Plan of Reorganization provided to shareholders in a were $202,292. The shareholders of each Class of the Prospectus/Information Statement on June 1, 2007. The Large-Cap Growth Fund received for each share owned acquisition was accomplished by a tax-free exchange of 2,769 approximately 1.35, 1.29, 1.32 and 1.31 shares, respectively, Class A shares and 693 Class C shares of Value Opportunities of Class X, Class A, Class B and Class C shares of the same (valued at $39,206, and $9,749, respectively) for 2,130 Class class of the Strategic Growth Fund. A shares and 553 Class C shares of Value Equity outstanding on July 13, 2007. Value Equity had net assets on that date of $48,955 including $9,066 of net unrealized depreciation which were combined with those of Value Opportunities. The aggregate net assets of Value Opportunities immediately after the merger were $104,542. The shareholders of each class of Value Equity received for each share owned approximately 1.30 and 1.25 shares, respectively, of Class A and Class C shares of Value Opportunities.
11. FEDERAL INCOME TAX INFORMATION ($ REPORTED IN THOUSANDS) At March 31, 2009, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Funds were as follows:
NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION FUND TAX COST APPRECIATION (DEPRECIATION) (DEPRECIATION) ---- -------- ------------ -------------- -------------- All-Cap Growth Fund ................. $ 58,640 $2,044 $(14,069) $(12,025) Growth & Income Fund ................ 127,306 7,017 (7,147) (130) Growth Opportunities Fund ........... 20,121 1,381 (2,961) (1,580) Income & Growth Fund ................ 188,267 5,167 (20,178) (15,011) Mid-Cap Growth Fund ................. 83,087 2,685 (24,609) (21,924) Quality Small-Cap Fund .............. 80,721 896 (23,437) (22,541) Small-Cap Core Fund ................. 36,950 1,206 (6,095) (4,889) Small-Cap Growth Fund ............... 56,835 2,434 (12,061) (9,627) Small-Cap Sustainable Growth Fund ... 10,956 543 (3,205) (2,662) Strategic Growth Fund ............... 92,778 2,947 (17,314) (14,367) Value Opportunities Fund ............ 53,778 3,120 (9,620) (6,500)
The Funds have capital loss carryovers which may be used to offset future capital gains, as follows:
EXPIRATION YEAR ------------------------------------------------------------- 2010 2011 2012 2014 2016 2017 TOTAL ------ ------- ------ ---- ------ ------- ------- All-Cap Growth Fund ........ $ -- $ -- $ -- $ -- $ -- $ 7,094 $ 7,094 Growth & Income Fund ....... 9,552 18,605 2,953 -- -- 6,192 37,302 Growth Opportunities Fund .. 8,526 3,012 -- -- -- 9,967 21,505 Income & Growth Fund ....... -- -- -- -- -- 2,539 2,539 Mid-Cap Growth Fund ........ 30,519 -- -- -- 3,884 9,046 43,449 Quality Small-Cap Fund ..... -- -- -- -- -- 2,331 2,331 Small-Cap Core Fund ........ -- -- -- -- -- 4,753 4,753 Small-Cap Growth Fund ...... 66,001 8,840 -- -- -- 3,054 77,895 Small-Cap Sustainable Growth Fund ............. -- -- -- 2 310 1,243 1,555 Strategic Growth Fund ...... 39,493 13,554 329 686 -- 15,188 69,250 Value Opportunities Fund ... -- 407 -- -- -- 25,023 25,430
79 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 The Trust may not realize the benefit of these losses to the extent each Fund does not realize gains on investments prior to the expiration of the capital loss carryovers. The Growth & Income Fund's, the Mid-Cap Growth Fund's, the Strategic Growth Fund's and the Value Opportunities Fund's amounts include losses acquired in connection with prior year mergers. Utilization of these capital loss carryovers is subject to annual limitations. The following Funds had capital loss carryovers which expired in 2009:
FUND ---- Growth & Income Fund ....... $ 3,593 Growth Opportunities Fund .. 689 Mid-Cap Growth Fund ........ 21,884 Strategic Growth Fund ...... 23,019
Under current tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal period ended March 31, 2009, the Funds deferred and recognized post-October losses as follows:
CAPITAL CAPITAL CURRENCY LOSS LOSS LOSS DEFERRED RECOGNIZED DEFERRED -------- ---------- -------- All-Cap Growth Fund ................. $ 4,736 $ -- $ -- Growth & Income Fund ................ 46,815 5,031 -- Growth Opportunities Fund ........... 7,576 3,762 -- Income & Growth Fund ................ 30,406 -- 69 Mid-Cap Growth Fund ................. 22,105 -- -- Quality Small-Cap Fund .............. 12,220 -- -- Small-Cap Core Fund ................. 3,775 -- -- Small-Cap Growth Fund ............... 19,659 -- -- Small-Cap Sustainable Growth Fund ... 3,219 -- -- Strategic Growth Fund ............... 17,145 1,052 -- Value Opportunities Fund ............ 14,961 5,914 --
The components of distributable earnings on a tax basis (excluding unrealized appreciation (depreciation) which are disclosed in the Schedules of Investments) consist of the following:
UNDISTRIBUTED UNDISTRIBUTED LONG-TERM ORDINARY CAPITAL INCOME GAINS ------------- ------------- Growth & Income Fund ..... $1,126 $-- Income & Growth Fund ..... 555 -- Quality Small-Cap Fund .... 307 -- Value Opportunities Fund .. 367 --
The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions reported in the Statements of Changes in Net Assets, if any, are reported as ordinary income for federal tax purposes. 12. RECLASSIFICATION OF CAPITAL ACCOUNTS ($ REPORTED IN THOUSANDS) For financial reporting purposes, book basis capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Permanent reclassifications can arise from differing treatment of certain income and gain transactions, nondeductible current year net operating losses, expiring capital loss carryovers and investments in passive foreign investment companies. The reclassifications have no impact on the net assets or net asset value of the Funds. As of March 31, 2009, the Funds recorded reclassifications to increase (decrease) the accounts as listed below:
CAPITAL PAID IN ON SHARES OF UNDISTRIBUTED NET ACCUMULATED BENEFICIAL INVESTMENT INCOME NET REALIZED INTEREST (LOSS) GAIN (LOSS) -------------- ----------------- ------------ All-Cap Growth Fund ................ $ (520) $ 507 $ 13 Growth & Income Fund ............... (3,630) (3) 3,633 Growth Opportunities Fund .......... (871) 182 689 Income & Growth Fund ............... 393 222 (615) Mid-Cap Growth Fund ................ (20,556) 447 20,109 Quality Small-Cap Fund ............. (1) 1 -- Small-Cap Core Fund ................ 242 3 (245) Small-Cap Growth Fund .............. (1,258) 1,255 3 Small-Cap Sustainable Growth Fund .. (101) 101 -- Strategic Growth Fund .............. (23,565) 546 23,019 Value Opportunities Fund ........... (6) (20) 26
80 VIRTUS EQUITY TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 13. RECENTLY ISSUED ACCOUNTING STANDARDS 14. MARKET CONDITIONS In April 2009, FASB issued FASB Staff Position No. 157-4, Events in the financial sector have resulted in an unusually DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY high degree of volatility in the financial markets and the FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND net asset value of many mutual funds, including the Funds. IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY ("FSP 157-4"). Such events include, but are not limited to, the seizure of FSP 157-4 is effective for fiscal years and interim periods the Federal National Mortgage Association and the Federal ending after June 15, 2009. FSP 157-4 provides additional Home Loan Mortgage Corporation by U.S. banking regulators, guidance for estimating fair value in accordance with SFAS the bankruptcy filing of Lehman Brothers and sale of Merrill 157 (see Note 2A) when the volume and level of activity for Lynch to Bank of America, and the government bailout of AIG. the asset or liability have significantly decreased. FSP These companies represent financial institutions with which 157-4 also includes guidance on identifying circumstances certain of the Funds may conduct business and/or whose that indicate a transaction is not orderly. FSP 157-4 requires securities are or may be held by the Funds. The potential entities to describe the inputs used in valuation techniques investment of each Fund's investments in these issuers, and used to measure fair value and changes in inputs over the the financial sector in general, as reflected in each Fund's period. FSP 157-4 expands the three-level hierarchy Schedule of Investments, exposes investors to the negative disclosure and the level three-roll forward disclosure for (or positive) performance resulting from these and other each major security type as described in paragraph 19 of FAS events. No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Management is currently evaluating the 15. SUBSEQUENT EVENTS impact the implementation of FSP 157-4 will have on the Funds' financial statement disclosures, if any. Effective April 24, 2009, the Virtus All-Cap Growth Fund, formerly a series of Virtus Equity Trust, was merged with and In March 2008, Statement of Financial Accounting Standards into the Virtus Strategic Growth Fund, a separate series of No. 161, "Disclosures about Derivative Instruments and Virtus Equity Trust. Hedging Activities" ("SFAS 161") was issued and is effective for fiscal years and interim periods beginning after November Effective May 1, 2009, the Virtus Income & Growth Fund 15, 2008. SFAS 161 is intended to improve financial reporting changed its name to Virtus Tactical Allocation Fund, and its for derivative instruments by requiring enhanced disclosure investment objective will be changed effective June 1, 2009. that enables investors to understand how and why a fund uses As of the latter date, the Fund's investment objective will derivatives, how derivatives are accounted for, and how be to seek capital appreciation and income. In addition, the derivative instruments affect a fund's results of operations Board of Trustees has approved and recommended for approval and financial position. Management is currently evaluating by shareholders at a Special Meeting of Shareholders to be the impact of SFAS 161 on financial statement disclosures, if held on June 4, 2009, a proposal to replace Goodwin with SCM any. Advisors LLC ("SCM") as the Fund's subadviser responsible for the management of the Fund's fixed income portfolio. SCM is an indirect wholly-owned subsidiary of Virtus. The subadviser's fee will be paid by the Adviser, not by the Fund. A proxy statement describing the proposal was filed with the Securities and Exchange Commission and mailed to the shareholders of the Fund on April 16, 2009.
81 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PRICEWATERHOUSECOOPERS LOGO) To the Board of Trustees and Shareholders of Virtus Equity Trust In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Virtus All-Cap Growth Fund (formerly Phoenix All-Cap Growth Fund), Virtus Growth & Income Fund (formerly Phoenix Growth & Income Fund), Virtus Growth Opportunities Fund (formerly Phoenix Growth Opportunities Fund), Virtus Income & Growth Fund (formerly Phoenix Income & Growth Fund), Virtus Mid-Cap Growth Fund (formerly Phoenix Mid-Cap Growth Fund), Virtus Quality Small-Cap Fund (formerly Phoenix Quality Small-Cap Fund), Virtus Small-Cap Core Fund (formerly Phoenix Small-Mid Cap Value Fund), Virtus Small-Cap Growth Fund (formerly Phoenix Small-Cap Growth Fund), Virtus Small-Cap Sustainable Growth Fund (formerly Phoenix Small-Cap Sustainable Growth Fund), Virtus Strategic Growth Fund (formerly Phoenix Strategic Growth Fund) and Virtus Value Opportunities Fund (formerly Phoenix Value Opportunities Fund) (eleven series of Virtus Equity Trust (formerly Phoenix Equity Trust), hereafter referred to as the "Funds") at March 31, 2009, the results of each of their operations for the year then ended and the changes in each of their net assets and the financial highlights for Virtus All-Cap Growth Fund, Virtus Growth & Income Fund, Virtus Income & Growth Fund, Virtus Mid-Cap Growth Fund, Virtus Quality Small-Cap Fund, Virtus Small-Cap Core Fund, Virtus Small-Cap Growth Fund, Virtus Small-Cap Sustainable Growth Fund, Virtus Strategic Growth Fund and Virtus Value Opportunities Fund for each of the periods indicated and the financial highlights for Virtus Growth Opportunities Fund for each of the periods indicated beginning with the period ended September 30, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The Financial Highlights for each of the two years in the period ended September 30, 2005 for Virtus Growth Opportunities Fund were audited by other independent accountants whose report dated November 18, 2005, expressed an unqualified opinion on those statements. PricewaterhouseCoopers LLP Philadelphia, PA May 22, 2009 82 VIRTUS EQUITY TRUST TAX INFORMATION NOTICE (UNAUDITED) MARCH 31, 2009 For the fiscal year ended March 31, 2009, the Funds make the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends ("QDI") to qualify for the lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by the Funds which qualifies for the dividends received deduction ("DRD") for corporate shareholders. The actual percentage of QDI and DRD for the calendar year will be designated in year-end tax statements. The Funds designate the amounts below, or if subsequently different, as long-term capital gains dividends ("LTCG") ($ reported in Thousands).
QDI DRD LTCG --- --- ---- All-Cap Growth Fund 0% 0% $-- Growth & Income Fund 100 100 -- Growth Opportunities Fund 0 0 -- Income & Growth Fund 36 35 -- Mid-Cap Growth Fund 0 0 -- Quality Small-Cap Fund 100 100 -- Small-Cap Core Fund 100 100 -- Small-Cap Growth Fund 0 0 -- Small-Cap Sustainable Growth Fund 0 0 -- Strategic Growth Fund 0 0 -- Value Opportunities Fund 100 100 --
83 CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) The Board of Trustees of the Trust, along with the Boards of With respect to the sub-advisory Agreements, the Board noted that Trustees of the other trusts in the Virtus Mutual Funds family of each subadviser provided portfolio management, compliance with funds (collectively, the "Board"), are responsible for the respective Fund's investment policies and procedures, determining whether to approve the establishment and continuation compliance with applicable securities laws and assurances of each investment advisory and sub-advisory agreement (each, an thereof. In considering the renewal of the sub-advisory "Agreement") applicable to the Virtus Mutual Funds (collectively, Agreements, therefore, the Board considered each subadviser's the "Funds"). At meetings held on November 18 - 20, 2008, the investment management process, including (a) the experience, Board, including a majority of the independent Trustees, capability and integrity of the subadviser's management and other considered and approved the continuation of each Agreement, as personnel committed by the subadviser to its respective Fund(s); further discussed below. In approving each Agreement, the Board (b) the financial position of the subadviser; (c) the quality and determined that the continued retention of the applicable adviser commitment of the subadviser's regulatory and legal compliance or subadviser was in the best interests of the Funds and their policies, procedures and systems; and (d) the subadviser's shareholders. The Trustees considered each Fund separately, brokerage and trading practices. though they also collectively took into account those interests that all the Funds had in common. After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the In reaching their decisions, the Board considered information services provided by VIA and each subadviser were reasonable and furnished throughout the year at regular Board meetings as well beneficial to the Funds and their shareholders. as information prepared specifically in connection with the annual review process. During the review process, the Board INVESTMENT PERFORMANCE. The Board placed significant emphasis on received assistance and advice from, and met separately with, its consideration of the investment performance of the Funds, in independent legal counsel. The Board's determination contemplated view of its importance to shareholders, and evaluated Fund a number of factors that the Trustees believed, in light of the performance in the context of the special considerations that a legal advice furnished to them as well as their own business manager-of-managers structure requires. The Board also considered judgment, to be relevant. Some of the factors that the Board that VIA continued to be proactive in seeking to replace and/or considered are described below, although the Trustees did not add subadvisers as necessary, with a view toward improving Fund identify any particular information or factor as controlling but performance over the long term. instead considered the Agreements in the totality of the circumstances. Each individual Trustee may have evaluated the While consideration was given to performance reports and information presented differently, giving different weights to discussions at Board meetings throughout the year, particular different factors. attention in assessing such performance was given to a report (the "Lipper Report") for the Funds prepared by Lipper Inc. NATURE, EXTENT AND QUALITY OF SERVICES. The majority of the ("Lipper") and furnished specifically for the contract renewal Funds(1) are managed using a "manager of managers" structure that process. (Lipper is an independent provider of investment company generally involves the use of one or more subadvisers to manage data retained by the Funds for this purpose.) The Lipper Report some or all of a Fund's portfolio. Under this structure, Virtus presented each Fund's short-term and long-term performance Investment Advisers, Inc. ("VIA") is responsible for evaluating relative to a peer group of other mutual funds and relevant and selecting subadvisers on an ongoing basis and making any benchmarks, as selected by Lipper. The Board considered the recommendations to the Board regarding hiring, retaining or composition of each peer group, selection criteria and the replacing subadvisers. In considering the Agreement with VIA, appropriateness of the benchmark used for each Fund. The Board therefore, the Trustees considered VIA's process for supervising also assessed each Fund's performance in the context of its and managing the Funds' subadvisers, including (a) VIA's ability review of the fees and expenses of each Fund as well as VIA's to select and monitor the subadvisers; (b) VIA's ability to profitability. provide the services necessary to monitor the subadvisers' compliance with the Funds' respective investment objectives, The Board noted that while many of the Funds had generally policies and restrictions as well as provide other oversight performed in line with their respective benchmarks and peer activities; and (c) VIA's ability and willingness to identify groups during the periods measured, some of the Funds had instances in which a subadviser should be replaced and to carry underperformed in comparison with their respective benchmarks out the required changes. The Trustees also considered: (d) the and/or peer groups. The Board noted that certain of the Funds' experience, capability and integrity of VIA's management and underperformance was slight, and that some of the Funds other personnel; (e) the financial position of VIA; (f) the underperforming their benchmarks and/or peer groups for a given quality of VIA's own regulatory and legal compliance policies, period had outperformed such benchmarks and/or peer groups during procedures and systems; (g) the nature, extent and quality of other periods. Where significant, the Board extensively administrative and other services provided by VIA to the Funds; considered the performance of the underperforming Funds and the and (h) VIA's supervision of the Funds' other service providers. reasons for the performance issues. The Board discussed the Finally, the Board also noted the extent of benefits that are possible reasons for the underperformance with VIA, and spoke provided to Fund shareholders as a result of being part of the with representatives from VIA regarding plans to monitor and family of Virtus Mutual Funds, including the right to exchange address performance issues during the coming year. investments between the same class of Funds without a sales charge, the ability to reinvest Fund dividends into other Funds and the right to combine holdings in other Funds to obtain a reduced sales charge.
---------- (1) DURING THE PERIOD BEING REPORTED, THE ONLY FUNDS THAT DID NOT EMPLOY A MANAGER OF MANAGERS STRUCTURE WERE VIRTUS GROWTH & INCOME FUND, WHICH IS A SERIES OF VIRTUS EQUITY TRUST; AND VIRTUS WEALTH ACCUMULATOR FUND, VIRTUS WEALTH BUILDER FUND, VIRTUS DIVERSIFIER FUND AND VIRTUS ALTERNATIVES DIVERSIFIER FUND, WHICH ARE SERIES OF VIRTUS OPPORTUNITIES TRUST. VIA ACTED AS THE ADVISER FOR THESE FUNDS WITHOUT EMPLOYING A SUBADVISER, AND THE BOARD CONSIDERED THE VIA AGREEMENT WITH RESPECT TO THESE FUNDS IN THAT CONTEXT. 84 CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) The Board ultimately determined, within the context of all of its The Board did not receive comparative fee information relating considerations in connection with the Agreements, that the Funds' specifically to sub-advisory fees, in light of the fact that the overall investment performance was reasonable, and concluded that sub-advisory fees are paid by VIA and not by the Funds, so that VIA's and each subadviser's performance record and process in Fund shareholders are not directly impacted by those fees. managing the Funds merited approval of the continuation of the Agreements. However, the Board noted that certain Funds' ECONOMIES OF SCALE. The Board noted that the management fees for performance would continue to be closely monitored and it several of the Funds included breakpoints based on assets under expected that if performance over a longer period of time did not management, and that fee waivers and/or expense caps were also in improve the adviser would recommend that the subadviser be place for several of the Funds. The Board determined that VIA and replaced in a timely manner. the Funds likely would achieve certain economies of scale, particularly in relationship to certain fixed costs, and that PROFITABILITY. The Board also considered the level of profits shareholders of the Funds would have an opportunity to benefit realized by VIA and its affiliates in connection with the from these economies of scale. operation of the Funds. In this regard, the Board reviewed the analysis presented regarding the overall profitability of VIA for In considering the sub-advisory Agreements, the Board also its management of the Virtus Mutual Funds, as well as its profits considered the existence of any economies of scale and whether and those of its affiliates for managing and providing other they would be passed along to the Funds' shareholders, but noted services to each Fund. In addition to the fees paid to VIA and that any such economies would likely be generated at the Fund its affiliates, the Trustees considered any other benefits level rather than at the subadviser level. derived by VIA or its affiliates from their relationship with the Funds. Specific attention was paid to the methodology used to allocate costs to each Fund, in recognition of the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this regard, the Board noted that the allocations appeared reasonable, and concluded that the profitability to VIA from each Fund was reasonable in light of the quality of all services rendered to the Funds by VIA and its affiliates. The Board did not separately review profitability information for each subadviser, noting that the sub-advisory fees are paid by VIA rather than the Funds, so that Fund shareholders are not directly impacted by those fees. MANAGEMENT FEES AND TOTAL EXPENSES. In evaluating the management fees and total expenses of each Fund, the Board reviewed information provided by VIA and comparisons to other funds in each Fund's peer group as presented in the Lipper Report. The Board noted that certain Funds had higher gross expenses when expressed as a percentage of net assets than those of such Funds' larger peers, which the Trustees considered in the context of these Funds' expectations for future growth. Finally, the Board also noted that several of the Funds had fee waivers and/or expense caps in place to limit the total expenses incurred by the Funds and their shareholders. Based upon the information presented by VIA and Lipper, the Trustees then determined, in the exercise of their business judgment, that the management fees charged by VIA and the total expenses of the Funds were reasonable, both on an absolute basis and in comparison with the fees and expenses of other funds in each Fund's peer group and the industry at large.
85 CONSIDERATION OF SUBADVISORY AGREEMENT FOR VIRTUS TACTICAL ALLOCATION FUND (FORMERLY THE VIRTUS INCOME & GROWTH FUND) (THE "FUND") BY THE BOARD OF TRUSTEES (UNAUDITED) The Board, including a majority of the independent Trustees, 1) the nature, extent and quality of the services to be last renewed the investment advisory agreement (the "Advisory provided by SCM Advisors, including SCM Advisors' investment Agreement") between Virtus Investment Advisers, Inc. (the approach and the experience of the investment team; "Adviser") and the Fund, and the investment subadvisory agreement between the Adviser and Goodwin Capital Advisers, Inc. 2) the rate of the investment subadvisory fee that would be ("Goodwin"), at a meeting held on November 18-20, 2008. It was paid by the Adviser (and not the Fund) under the Subadvisory noted that Goodwin managed only the fixed income portion of the Agreement, and the advisory fee paid by the Fund, both of Fund's portfolio. At a Board meeting held on February 24-25, which would remain unchanged, at this time, from the fees paid 2009, the Board noted that Management was proposing that SCM under the previous subadvisory agreement and Advisory Advisors, LLC ("SCM Advisors") be appointed as the new subadviser Agreement; and with respect to the fixed income portion of the Fund's portfolio, and enter into a new subadvisory agreement (the "Subadvisory 3) the performance of SCM Advisors' composite with Agreement") which, if approved by the Board, would need to be substantially similar investment objectives, strategies and approved by shareholders of the Fund at a shareholder meeting policies as the Fund. scheduled to be held on June 4, 2009. If approved by shareholders, the Subadvisory Agreement would become effective on In considering the profitability to SCM Advisors of its or about June 8, 2009. The Board noted Management's relationship with the Fund, the Board noted that the fees representations that the Fund would benefit from SCM Advisors' under the Subadvisory Agreement were paid by the Adviser out management as evidenced by its stronger performance history of of the advisory fees that it receives under the Advisory similar fixed income strategies. Agreement, and that the subadvisory fees would be paid at the same level as under the previous subadvisory agreement. For In evaluating the proposal to appoint SCM Advisors, the Board these reasons, the profitability to SCM Advisors of its requested and evaluated information provided by the Adviser and relationship with the Fund was not a material factor in the SCM Advisors which, in the Board's view, constituted information Board's deliberations. For similar reasons, the Board did not necessary for the Board to form a judgment as to whether the consider the potential economies of scale in SCM Advisors' subadviser change would be in the best interests of the Fund and management of the Fund to be a material factor in its its shareholders. Prior to making its final decision, the Board consideration. Based on all the foregoing reasons, the Board met privately with their independent counsel to discuss the concluded that the proposed Subadvisory Agreement was information provided. favorable for shareholders because shareholders could benefit from management of the Fund's assets by the fixed income In their deliberations, the Trustees did not identify any investment team at SCM Advisors. particular information that was all-important or controlling, and each Trustee attributed different weights to the various factors. In recommending that shareholders approve this proposal, the Trustees considered various factors, including:
86 RESULTS OF SHAREHOLDER MEETING VIRTUS EQUITY TRUST MARCH 31, 2009 (UNAUDITED) A special meeting of shareholders of Virtus All-Cap Growth Fund, a former series of Virtus Equity Trust (the "Fund") was held on March 27, 2009 to vote on a proposal to approve an Agreement and Plan of Reorganization to merge the Fund into Virtus Strategic Growth Fund, a series of Virtus Equity Trust. The special meeting was adjourned until April 21, 2009 due to insufficient votes to pass the proposal. RESULTS OF SHAREHOLDER MEETING VIRTUS EQUITY TRUST APRIL 21, 2009 (UNAUDITED) At a reconvened special meeting of shareholders of Virtus All-Cap Growth Fund, a former series of Virtus Equity Trust, held on April 21, 2009, shareholders voted on the following proposal: NUMBER OF ELIGIBLE SHARES VOTED:
FOR AGAINST ABSTAIN --------- ------- ------- To approve an Agreement and Plan of Reorganization to merge Virtus All-Cap Growth Fund, a former series of Virtus Equity Trust into Virtus Strategic Growth Fund, a series of Virtus Equity Trust ....................... 2,793,350 104,025 356,475
87 FUND MANAGEMENT TABLES (UNAUDITED) Information pertaining to the Trustees and officers of the Trust as of March 31, 2009, is set forth below. The statement of additional information (SAI) includes additional information about the Trustees and is available without charge, upon request, by calling (800) 243-4361. The address of each individual, unless otherwise noted, is 100 Pearl Street, Hartford, CT 06103-4506. There is no stated term of office for Trustees of the Trust. INDEPENDENT TRUSTEES
NAME, YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN OTHER DIRECTORSHIPS HELD BY TRUSTEE -------------------------------------------------------------------------------- Leroy Keith, Jr. Managing Director, Almanac Capital Management YOB: 1939 (commodities business) (2007-present). Partner, Elected: 1993 Stonington Partners, Inc. (private equity firm) 49 Funds (2001-2007). Director/Trustee, Evergreen Funds (88 portfolios). Philip R. McLoughlin Partner, Cross Pond Partners, LLC (2006-Present). YOB: 1946 Director, World Trust Fund. Chairman and Trustee, The Elected: 1993 Phoenix Edge Series Fund (2003-present). Director, DTF 51 Funds Tax-Free Income Fund, Inc., Duff & Phelps Utility and Corporate Bond Trust, Inc. and DNP Select Income Fund, Inc. Managing Director, SeaCap, Asset Management Fund I L.P. Geraldine M. McNamara Retired. Managing Director, U.S. Trust Company of New YOB: 1951 York (private bank) (1982-2006). Elected: 2001 51 Funds James M. Oates Managing Director, Wydown Group (consulting firm) YOB: 1946 (1994-present). Chairman, Hudson Castle Group, Inc. Elected: 1993 (formerly IBEX Capital Markets, Inc.) (financial 49 Funds services) (1997-2006). Director, Stifel Financial. Chairman and Trustee, John Hancock Trust (93 portfolios) and John Hancock Funds II (74 portfolios). Non-Executive Chairman, Hudson Castle Group, Inc. Richard E. Segerson Managing Director, Northway Management Company YOB: 1946 (1998-present). Elected: 1998 49 Funds Ferdinand L.J. Verdonck Retired. Director, Galapagos N.V. (biotechnology). Mr. YOB: 1942 Verdonck is also a director of several non-U.S. Elected: 2004 companies. 49 Funds
88 FUND MANAGEMENT TABLES (CONTINUED) (UNAUDITED) INTERESTED TRUSTEE The individual listed below is an "interested person" of the Trust, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.
NAME, YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN OTHER DIRECTORSHIPS HELD BY TRUSTEE ----------------------- ------------------------------------------------------ George R. Aylward(1) Director, President and Chief Executive Officer YOB: 1964 (2008-present), Director and President (2006-2008), Elected: 2006 Chief Operating Officer (2004-2006), Vice President, 51 Funds Finance (2001-2002), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Senior Executive Vice President and President, Asset Management (2007-2008), Senior Vice President and Chief Operating Officer, Asset Management (2004-2007), Vice President and Chief of Staff (2001-2004), The Phoenix Companies, Inc. Various senior officer and directorship positions with Phoenix affiliates (2005-2008). President (2006- present), Executive Vice President (2004-2006), the Virtus Mutual Funds Family. Chairman, President and Chief Executive Officer, The Zweig Fund Inc. and The Zweig Total Return Fund Inc. (2006-present).
(1) Mr. Aylward is an "interested person," as defined in the Investment Company Act of 1940, by reason of his relationship with Virtus Investment Partners, Inc. and/or its affiliates. 89 FUND MANAGEMENT TABLES (CONTINUED) (UNAUDITED) OFFICERS OF THE FUND WHO ARE NOT TRUSTEES
POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------ ------------------------------ ------------------------------------------------------------------------------ Nancy G. Curtiss Senior Vice President Executive Vice President, Head of Operations (since 2009), Senior Vice YOB: 1952 since 2006. President, Operations (2008-2009), Vice President, Head of Asset Management Operations (2007-2008), Vice President (2003-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Assistant Treasurer (2001-2009), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Ms. Curtiss is also Treasurer of various other investment companies within the Virtus Mutual Funds Complex (1994-present). Francis G. Waltman Senior Vice President Executive Vice President, Head of Product Management (since 2009), Senior YOB: 1962 since 2008. Vice President, Asset Management Product Development (2008-2009), Senior Vice President, Asset Management Product Development (2005-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Director (since 2008), Director and President (2006-2007), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Director and Senior Vice President (since 2008), Senior Vice President (2006-2007), Virtus Investment Advisers, Inc. Marc Baltuch Vice President and Chief Compliance Officer, Zweig-DiMenna Associates LLC (1989-present). Vice c/o Zweig-DiMenna Chief Compliance Officer President, The Zweig Total Return Fund, Inc. (2004-present). Vice President, Associates, LLC since 2004. The Zweig Fund, Inc. (2004-present). President and Director of Watermark 900 Third Avenue Securities, Inc. (1991-present). Assistant Secretary, Gotham Advisors Inc. New York, NY 10022 (1990-2005). YOB: 1945 W. Patrick Bradley Chief Financial Officer and Senior Vice President, Fund Administration (since 2009), Vice President, YOB: 1972 Treasurer since 2006. Fund Administration (2007-2009), Second Vice President, Fund Control & Tax (2004-2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer (2006-present), Assistant Treasurer (2004-2006), The Phoenix Edge Series Fund. Chief Financial Officer and Treasurer (2005-present), Assistant Treasurer (2004-2006), certain funds within the Virtus Mutual Funds Family. Kevin J. Carr Vice President, Chief Legal Senior Vice President (since 2009), Counsel and Secretary (2008-present) and YOB: 1954 Officer, Counsel and Secretary Vice President (2008-2009), Virtus Investment Partners, Inc. and/or certain of since 2005. its subsidiaries. Vice President and Counsel, Phoenix Life Insurance Company (2005-2008). Compliance Officer of Investments and Counsel, Travelers Life & Annuity Company (January 2005-May 2005). Assistant General Counsel and certain other positions, The Hartford Financial Services Group (1995-2005).
90 VIRTUS EQUITY TRUST 101 Munson Street Greenfield, MA 01301-9668 TRUSTEES INVESTMENT ADVISER George R. Aylward Virtus Investment Adviser, Inc. Leroy Keith, Jr. 100 Pearl Street Philip R. McLoughlin, Chairman Hartford, CT 06103-4506 Geraldine M. McNamara James M. Oates PRINCIPAL UNDERWRITER Richard E. Segerson VP Distributors, Inc. Ferdinand L.J. Verdonck 100 Pearl Street Hartford, CT 06103-4506 OFFICERS George R. Aylward, President TRANSFER AGENT Nancy G. Curtiss, Senior Vice President VP Distributors, Inc. Francis G. Waltman, Senior Vice President 100 Pearl Street Marc Baltuch, Vice President and Chief Hartford, CT 06103-4506 Compliance Officer W. Patrick Bradley, Chief Financial Officer CUSTODIANS and Treasurer PFPC Trust Company Kevin J. Carr, Vice President, Chief Legal Officer, 8800 Tinicum Boulevard Counsel and Secretary Philadelphia, PA 19155-3111 State Street Bank and Trust Company P.O. Box 5501 Boston, MA 02206-5501 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 2001 Market St. Philadelphia, PA 19103-7042 HOW TO CONTACT US Mutual Fund Services 1-800-243-1574 Advisor Consulting Group 1-800-243-4361 Telephone Orders 1-800-367-5877 Text Telephone 1-800-243-1926 Web site VIRTUS.COM 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.
THIS PAGE INTENTIONALLY BLANK. VIRTUS EQUITY TRUST VIRTUS QUALITY SMALL-CAP FUND VIRTUS SMALL-CAP CORE FUND VIRTUS SMALL-CAP SUSTAINABLE GROWTH FUND Supplement dated February 25, 2009 to the Prospectus dated June 6, 2008, as supplemented and revised IMPORTANT NOTICE TO INVESTORS The following information updates and replaces the disclosure under "Portfolio Management" for each of the above-referenced funds. KAYNE The following individuals are the members of the team of equity investment professionals jointly and primarily responsible for the day-to-day management of the funds referenced below. TODD BEILEY, CFA. Mr. Beiley is a Co-Portfolio Manager of the Small-Cap Core Fund (since February 2009) and the Small-Cap Sustainable Growth Fund (since 2008). Mr. Beiley is a Senior Research Analyst with primary research responsibilities for the small and mid-capitalization health-care sector. Before joining Kayne in 2002, Mr. Beiley was an associate analyst in equity research at Prudential Securities. He has over nine years of investment industry experience. JON CHRISTENSEN, CFA. Mr. Christensen is a Co-Portfolio Manager of the Small-Cap Core Fund (since December 2008) and the Small-Cap Sustainable Growth Fund (since February 2009). Mr. Christensen is a portfolio manager and senior research analyst with primary research responsibilities for the small- and mid-capitalization non-retail consumer-cyclicals sector. Before joining Kayne in 2001, he was a portfolio manager and senior research analyst for Doheny Asset Management. Mr. Christensen has approximately 13 years of investment industry experience. JULIE KUTASOV, CPA. Ms. Kutasov is a Co-Portfolio Manager of the Quality Small-Cap Fund (since 2008). Ms. Kutasov is a Senior Research Analyst with primary research responsibilities for the small and mid-capitalization financials sector. Before joining Kayne in 2001, Ms. Kutasov worked in the investment management group at Goldman Sachs. She has approximately seven years of investment industry experience. ROBERT SCHWARZKOPF, CFA. Mr. Schwarzkopf is a Co-Portfolio Manager of the Quality Small-Cap Fund (since inception in June 2006), the Small-Cap Core Fund (since 1998) and the Small-Cap Sustainable Growth Fund (since inception in June 2006). Mr. Schwarzkopf is Chief Investment Officer (since 2007), a portfolio manager for the Small and Mid Cap Equity Portfolios (since 1992), and a member of the Executive Management Committee. Before joining Kayne in 1991, Mr. Schwarzkopf was a member of the Investment Policy Committee at the Pilgrim Group of Mutual Funds and portfolio manager for Pilgrim Regional Bankshares. He has approximately 27 years of investment industry experience. CRAIG STONE. Mr. Stone is a Co-Portfolio Manager of the Quality Small-Cap Fund (since February 2009). Mr. Stone is a Senior Research Analyst with primary research responsibilities for the small and mid-capitalization capital goods and energy sectors. Before joining Kayne in 2000, Mr. Stone was a Portfolio Manager at Doheny Asset Management. He has approximately 19 years of investment industry experience. INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE PROSPECTUS FOR FUTURE REFERENCE. (VIRTUS MUTUAL FUNDS LOGO) PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT 1793 c/o State Street Bank and Trust Company P.O. Box 8301 Boston, MA 02266-8301 For more information about Virtus mutual funds, please call your financial representative, contact us at 1-800-243-1574 or VIRTUS.COM. 8015 4-09 ANNUAL REPORT [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS VIRTUS BALANCED FUND -------------------------------------------------------------------------------- WOULDN'T YOU RATHER HAVE THIS DOCUMENT E-MAILED TO YOU? TRUST NAME: ELIGIBLE SHAREHOLDERS CAN SIGN VIRTUS EQUITY TRUST March 31, 2009 UP FOR E-DELIVERY AT VIRTUS.COM NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE TABLE OF CONTENTS VIRTUS BALANCED FUND* ("Balanced Fund") Message to Shareholders................................................. 1 Glossary................................................................ 3 Disclosure of Fund Expenses............................................. 6 Fund Summary............................................................ 8 Schedule of Investments................................................. 12 Statement of Assets and Liabilities..................................... 22 Statement of Operations................................................. 23 Statement of Changes in Net Assets...................................... 24 Financial Highlights.................................................... 26 Notes to Financial Statements........................................... 28 Report of Independent Registered Public Accounting Firm................. 37 Tax Information Notice (Unaudited)...................................... 38 Consideration of Advisory and Subadvisory Agreements by the Board of Trustees.............................................. 39 Fund Management Tables.................................................. 43 * Please see Notes 1 and 3 in the Notes to Financial Statements for more information on the name change. -------------------------------------------------------------------------------- PROXY VOTING PROCEDURES (FORM N-PX) The adviser and subadviser vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Trust's Board of Trustees. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, 2008, free of charge, by calling toll-free 1-800-243-1574. This information is also available through the Securities and Exchange Commission's website at http://www.sec.gov. FORM N-Q INFORMATION The Trust files a complete schedule of portfolio holdings for the Fund with the Securities and Exchange Commission (the "SEC") for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC's website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330. -------------------------------------------------------------------------------- This report is not authorized for distribution to prospective investors in the Virtus Balanced Fund unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, the Fund's record and other pertinent information. MESSAGE TO SHAREHOLDERS Dear Fellow Shareholders of Virtus Mutual Funds: [PHOTO OMITTED] After the unprecedented economic events of 2008, investors were ready to greet the new year with great expectations. Instead, we were sorely disappointed. The first quarter of 2009 brought more dismal economic news as the worst financial crisis since the Great Depression continued, seemingly unabated. Consumer confidence and business sentiment spiraled downward on poor corporate earnings and woeful economic data. Major stock market indices posted their worst January and February returns on record, ultimately leading to a sixth straight down quarter. The new administration in Washington, D.C. responded with an alphabet-soup of financial recovery programs - TARP (Troubled Asset Relief Program), TALF (Term Asset-Backed Securities Loan Facility) and CAP (Capital Assistance Program) - conducted stress tests of troubled banks and took extreme measures in an attempt to rescue two of the "Big Three" automakers. But by March 9th, the Dow Jones Industrial Average(SM) was down 25.4 percent from the start of the year and the S&P 500(R) Index was off 27.4 percent. Then a number of promising signs appeared. Credit markets exhibited tentative evidence of stabilizing and the manufacturing sector reported modest increases in new orders. Retail sales gained slightly, and for the first time in two years the housing markets in some regions of the country indicated they may have hit bottom. There was a bounce in the financial markets, and March ended with the best monthly stock gains in more than six years. Whether this is the start of a significant "V"-shaped recovery or a temporary upswing of a "W" recovery remains to be seen. The second quarter began with a sprinkling of encouraging corporate earnings, and unemployment - while still a significant drag on the economy - shows signs of slowing. Questions remain on the effectiveness of the government's economic interventions, as well as the long-term impact of increasing budget deficits, yet we entered the second quarter with a glimmer of hope. The uncertainties of the economy are another reminder that investors should rely on the discipline and focus of professional investment managers and financial advisors when making decisions about personal investments. We encourage you to meet with your financial advisor and periodically review your portfolio to ensure it reflects your current investment objectives, your tolerance for risk, and your long-term financial goals. At Virtus, our commitments to quality investment solutions and superior customer service remain unchanged. We offer a wide range of equity, fixed income, and money market funds as well as alternative strategies that you may wish to consider as you review your investments. We recognize the economy and financial markets 1 still face substantial challenges, but our investment professionals remain committed to identifying the right options for your long-term investment needs. Your confidence in Virtus Mutual Funds is deeply appreciated. Sincerely, /s/ George R. Aylward George R. Aylward President, Virtus Mutual Funds MAY 1, 2009 WHENEVER YOU HAVE QUESTIONS ABOUT YOUR ACCOUNT OR REQUIRE ADDITIONAL INFORMATION, PLEASE VISIT US AT WWW.VIRTUS.COM OR CALL OUR SHAREOWNER SERVICES GROUP, TOLL FREE, AT 800-243-1574. PERFORMANCE DATA QUOTED REPRESENTS PAST RESULTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN ABOVE. GLOSSARY ADR (AMERICAN DEPOSITARY RECEIPT) Represents shares of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares. AMBAC American Municipal Bond Assurance Corporation BALANCED FUND COMPOSITE INDEX A composite index consisting of 60% S&P 500(R) Index and 40% Barclays Capital U.S. Aggregate Bond Index. BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX (FORMERLY LEHMAN BROTHERS AGGREGATE BOND INDEX) The Barclays Capital U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. CAP (CAPITAL ASSISTANCE PROGRAM) An element of the financial stability plan launched by the U.S. Department of Treasury to regain confidence in the financial industry. In this program, the U.S. Treasury makes capital available for financial institutions to borrow in order to enable them to continue to serve the public. CPI (CONSUMER PRICE INDEX) Measures the pace of inflation by measuring the change in consumer prices of goods and services, including housing, electricity, food, and transportation, as determined by a monthly survey of the U.S. Bureau of Labor Statistics. FASB Financial Accounting Standards Board FEDERAL RESERVE The central bank of the United States, responsible for controlling the 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. FGIC Financial Guaranty Insurance Company FHLMC Federal Home Loan Mortgage Corporation FNMA OR "FANNIE MAE" Federal National Mortgage Association FSA Financial Security Assurance, Inc. GNMA OR "GINNIE MAE" Government National Mortgage Association MBIA Municipal Bond Insurance Association MBS Mortgage-Backed Securities PPIP (PUBLIC-PRIVATE INVESTMENT PROGRAM) A plan designed to value and remove troubled assets from the balance sheet of troubled financial institutions in the U.S. Public-Private Investment Program consists mainly of two parts: a Legacy Loans Program and a Legacy Securities Program. The Legacy Loans Program uses FDIC-guaranteed debt along with private equity to purchase troubled loans from banks. On the other hand, the Legacy Securities Program is designed to use funds from the Federal Reserve, Treasury and private investors to reignite the market for legacy securities. Legacy securities include certain mortgage-backed securities, asset-backed securities and other securitized assets that the government deems to be eligible for the program. THE INDEXES ARE UNMANAGED AND NOT AVAILABLE FOR DIRECT INVESTMENT; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT THE EXPENSES ASSOCIATED WITH ACTIVE MANAGEMENT OF AN ACTUAL PORTFOLIO. 3 GLOSSARY (CONTINUED) REIT (REAL ESTATE INVESTMENT TRUST) 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. S&P 500(R) INDEX The S&P 500(R) 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. TALF (TERM ASSET-BACKED SECURITIES LOAN FACILITY) The TALF is intended to assist the credit markets in accommodating the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally. TARP (TROUBLED ASSET RELIEF PROGRAM) A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The fund was created by enacting the Emergency Economic Stabilization Act of 2008. TBA To be announced 4 THIS PAGE INTENTIONALLY BLANK. VIRTUS BALANCED FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 We believe it is important for you to understand the impact of costs on your investments. All mutual funds have operating expenses. As a shareholder of the Virtus Balanced Fund (the "Fund"), you incur two types of costs: (1) transaction costs, including sales charges on purchases of Class A shares and contingent deferred sales charges on Class B and Class C shares; and (2) ongoing costs, including investment advisory fees; distribution and service fees; and other expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the 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. The following Expense Table illustrates the Fund's costs in two ways. ACTUAL EXPENSES The first section of the accompanying table provides information about actual account values and actual expenses. You may use the information in this section, 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 first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the accompanying table provides information about hypothetical account values and hypothetical expenses based on the 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 the other funds. Please note that the expenses shown in the accompanying table 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 second section of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if those 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 timing of any purchases or redemptions. 6 VIRTUS BALANCED FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) (CONTINUED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 EXPENSE TABLE ------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During October 1, 2008 March 31, 2009 Ratio Period* ------------------------------------------------------------------------------- ACTUAL Class A $1,000.00 $ 801.60 1.13% $5.08 Class B 1,000.00 799.50 1.88 8.43 Class C 1,000.00 799.30 1.88 8.43 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,019.23 1.13 5.70 Class B 1,000.00 1,015.44 1.88 9.49 Class C 1,000.00 1,015.44 1.88 9.49 * Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days (182) expenses were accrued in the most recent fiscal half-year, then divided by 365 days to reflect the one-half year period. The Fund may invest in other funds, and the annualized expense ratios noted above do not reflect fees and expenses associated with the underlying funds. If such fees and expenses were included, the expenses would have been higher. You can find more information about the Fund's expenses in the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to the prospectus. 7 TICKER SYMBOLS: VIRTUS BALANCED FUND A Share: PHBLX B Share: PBCBX C Share: PSBCX o BALANCED FUND (THE "FUND") is diversified and has investment objectives of reasonable income, long-term capital growth and conservation of capital. o For the fiscal year ended March 31, 2009, the Fund's Class A shares returned -25.95%, Class B shares returned -26.40% and Class C shares returned -26.42%. For the same period, the Barclays Capital U.S. Aggregate Bond Index, a broad-based fixed income index, returned 3.13%; the S&P 500(R) Index, a broad-based equity index, returned -38.09%; and the Fund's Composite Index, which is the Fund's style-specific index appropriate for comparison, returned -23.36%. ALL PERFORMANCE FIGURES ASSUME REINVESTMENT OF DISTRIBUTIONS AND EXCLUDE THE EFFECT OF SALES CHARGES. 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. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO YOUR SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. HOW DID THE EQUITY MARKET PERFORM DURING THE FUND'S FISCAL YEAR? o Over the Fund's past fiscal year, generally speaking, all major U.S. equity benchmarks suffered losses. The S&P 500(R) Index, one of the most widely used and well know broad U.S. equity benchmarks was down 38.09% for the fiscal year. The Russell 2000(R) Index, an index measuring U.S. small capitalization stocks was down 37.50%. o All sectors within the S&P 500(R) Index recorded negative returns for the year, as the global recession and general economic slowdown spared none. o Increasing unemployment, tight credit markets, and general weakness in the housing market were among the themes that carried throughout the year as volatility reached multi-year highs. HOW DID THE FIXED INCOME MARKET PERFORM DURING THE FUND'S FISCAL YEAR? o The broad US fixed income market, as represented by the Barclays Capital U.S. Aggregate Bond Index, returned 3.13% for the fiscal year ended March 31, 2009. o Since March 31, 2008 the Federal Reserve (the "Fed") has cut the federal funds rate 2.00% from 2.25% to a target range of 0-0.25%, citing concerns over tightening credit conditions and a weakening economy. In the meetings, towards the end of 2nd quarter and early 3rd quarter 2008, as commodities were hitting all-time highs and inflation as measured by CPI was heightened, the Fed left rates unchanged citing concerns of downside risks to growth and upside inflation risks. In October the Fed resumed its rate cut campaign, cutting the federal funds rate from 2.00% to a target range of 0-0.25% by the end of the year. The Fed indicated that the additional rate cuts were necessary in response to the intensification of the financial crisis that increased the downside risk to growth and that inflationary pressures had started to moderate. Since the beginning of the fiscal year the yield curve has steepened, with rates declining across the curve but more pronounced at the front end of the curve. o The credit markets during the Fund's fiscal year ended March 31, 2009 can be broken down into two distinct sub-sections: the last three quarters of 2008 and the first quarter of 2009. The credit markets during the last three quarters of 2008 were extraordinarily volatile, with the 4th quarter being the most volatile. This was primarily due to fear surrounding the subprime mortgage market For information regarding the indexes and certain investment terms, see the glossary on page 3. 8 VIRTUS BALANCED FUND (CONTINUED) and its resulting contagion. During the year and even more in the 4th quarter, the economy showed significant signs of weakening with unemployment on the rise, a deteriorating housing market, and unprecedented stress to the financial system, resulting in a severe lack of liquidity and uncertainty in the market. Despite the numerous efforts of the Federal Reserve to inject liquidity into the system these fears caused a very significant flight to quality which resulted in dramatic spread widening in all sectors of the bond market. So significant was this flight to quality, that it caused treasuries to outperform all spread sectors for the full reporting period. o During the first quarter of 2009 the economy continued to show signs of weakening with rising unemployment, a deteriorating housing market, and declining retail sales and consumer confidence. While still at recessionary levels, the pace of the economic decline has shown signs of slowing. The various efforts of the Fed and U.S. Treasury to inject liquidity into the system and provide clarity are starting to take effect. Numerous government programs announced during the quarter such as PPIP, TALF, expanded quantitative easing via the Federal Reserve Bank's purchase of $1trillion long dated Treasuries, agency debt, and agency mortgage-backed securities, coupled with the FASB decision to alter rules regarding mark to market accounting have helped improve sentiment in all fixed income markets as well as equities. The flight to quality over the past 18 months has reversed with US Treasuries being outperformed by nearly all spread sectors during the 1st quarter. WHAT FACTORS AFFECTED THE FUND'S EQUITY PERFORMANCE DURING ITS FISCAL YEAR? o Value stocks weighed most heavily on the Fund's equity performance over the past year, as large-cap value stocks underperformed large-cap growth stocks by a significant margin. o Sector selection within the Fund had a negative impact on the Fund's return. In particular, Financials and Consumer Staples detracted the most. Information Technology and Telecommunications services added the most. o Overall, security selection had a slightly positive impact on performance relative to the benchmark S&P 500(R) Index. Security selection within the worst performing Financial Sector was positive as was selection in the Energy and Information Technology Sectors. Health Care, Consumer Discretionary and Materials issues proved most problematic. WHAT FACTORS AFFECTED THE FUND'S FIXED INCOME PERFORMANCE DURING ITS FISCAL YEAR? o The decision to maintain an underweight to U.S. Treasuries in favor of spread sectors was the largest detractor to performance for the fiscal year. Treasuries outperformed as concerns over sub-prime and the resulting credit crunch continued the flight to quality, causing spreads in many sectors to widen to or near historic levels. This environment typically does not favor the subadviser's style of investing, however, the Fund has maintained diversification in all of its credit intensive sectors and has used the spread widening as an opportunity to invest in high quality issues that have widened in sympathy with the market. For information regarding the indexes and certain investment terms, see the glossary on page 3. 9 VIRTUS BALANCED FUND (CONTINUED) o Among the Fund's investment in spread sectors, the overweight to commercial mortgage-backed securities, corporate high-yield securities, and residential mortgage-backed securities detracted the most from performance. o The largest positive contributors to performance were the Fund's exposure to agency mortgage-backed securities and municipal bonds, though municipal bonds underperformed U.S. Treasuries. THE PRECEDING INFORMATION IS THE OPINION OF PORTFOLIO MANAGEMENT ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. ANY SUCH OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET CONDITIONS AND SHOULD NOT BE RELIED ON AS INVESTMENT ADVICE. INVESTING INTERNATIONALLY, ESPECIALLY IN EMERGING MARKETS, INVOLVES ADDITIONAL RISKS SUCH AS CURRENCY, POLITICAL, ACCOUNTING, ECONOMIC AND MARKET RISK. THE FUND MAY INVEST IN HIGH YIELD BONDS, WHICH MAY BE SUBJECT TO GREATER CREDIT AND MARKET RISKS. AS INTEREST RATES RISE, EXISTING BOND PRICES FALL AND CAN CAUSE THE VALUE OF AN INVESTMENT IN THE FUND TO DECLINE. CHANGES IN INTEREST RATES WILL AFFECT THE VALUE OF LONGER-TERM FIXED INCOME SECURITIES MORE THAN SHORTER-TERM SECURITIES. INVESTING IN THE SECURITIES OF SMALL AND MID-SIZED COMPANIES INVOLVES GREATER RISKS AND PRICE VOLATILITY THAN INVESTING IN LARGER, MORE ESTABLISHED COMPANIES. INVESTING IN MUNICIPAL BONDS INVOLVES MARKET RISK AND CREDIT RISK. ASSET ALLOCATION as of 3/31/09* --------------------------------------------------- Common Stocks 56% --------------------------------------------------- Information Technology 10% --------------------------------------------------- Energy 8 --------------------------------------------------- Health Care 8 --------------------------------------------------- All Others 30 --------------------------------------------------- Mortgage-Backed Securities 17 --------------------------------------------------- Corporate Bonds 15 --------------------------------------------------- Other 12 --------------------------------------------------- *% of total investments as of March 31, 2009. For information regarding the indexes and certain investment terms, see the glossary on page 3. 10 AVERAGE ANNUAL TOTAL RETURNS(1) for periods ended 3/31/09
-------------------------------------------------------------------------------------------------- Inception 1 5 10 to Inception Year Years Years 3/31/09 Date -------------------------------------------------------------------------------------------------- CLASS A SHARES AT NAV(2) -25.95% -2.54% 0.42% -- -- -------------------------------------------------------------------------------------------------- CLASS A SHARES AT POP(3,4) -30.21 -3.69 -0.17 -- -- -------------------------------------------------------------------------------------------------- CLASS B SHARES AT NAV(2) -26.40 -3.26 -0.32 -- -- -------------------------------------------------------------------------------------------------- CLASS B SHARES WITH CDSC(4) -29.26 -3.26 -0.32 -- -- -------------------------------------------------------------------------------------------------- CLASS C SHARES AT NAV(2) -26.42 -- -- -4.33% 4/19/05 -------------------------------------------------------------------------------------------------- CLASS C SHARES WITH CDSC(4) -26.42 -- -- -4.33 4/19/05 -------------------------------------------------------------------------------------------------- S&P (500)(R) INDEX -38.09 -4.77 -3.00 -6.97 4/19/05 -------------------------------------------------------------------------------------------------- BARCLAYS CAPITAL U.S. AGGREGATE BOND INDEX 3.13 4.13 5.70 4.60 4/19/05 -------------------------------------------------------------------------------------------------- COMPOSITE INDEX FOR BALANCED FUND -23.36 -1.04 0.74 -2.19 4/19/05 -------------------------------------------------------------------------------------------------- FUND EXPENSE RATIOS(5): A SHARES: 1.08%; B SHARES: 1.83%; C SHARES: 1.83%.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) TOTAL RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE AND THE REINVESTMENT OF BOTH DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. (2) "NAV" (NET ASSET VALUE) TOTAL RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGE. (3) "POP" (PUBLIC OFFERING PRICE) TOTAL RETURNS INCLUDE THE EFFECT OF THE MAXIMUM FRONT-END 5.75% SALES CHARGE. (4) CDSC (CONTINGENT DEFERRED SALES CHARGE) IS APPLIED TO REDEMPTIONS OF CERTAIN CLASSES OF SHARES THAT DO NOT HAVE A SALES CHARGE APPLIED AT THE TIME OF PURCHASE. CDSC CHARGES FOR B SHARES DECLINE FROM 5% TO 0% OVER A FIVE-YEAR PERIOD. CDSC CHARGES FOR CERTAIN REDEMPTIONS OF CLASS A SHARES, AND ALL REDEMPTIONS OF CLASS C SHARES, ARE 1% IN THE FIRST YEAR AND 0% THEREAFTER. (5) THE EXPENSE RATIOS OF THE FUND ARE SET FORTH ACCORDING TO THE PROSPECTUS FOR THE FUND EFFECTIVE 6/6/08 AND MAY DIFFER FROM THE EXPENSE RATIOS DISCLOSED IN THE FINANCIAL HIGHLIGHTS TABLES IN THIS REPORT. GROWTH OF $10,000 for periods ended 3/31 -------------------------------------------------------------------------------- This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A and Class B shares including any applicable sales charges or fees. The performance of the other share class will be greater or less than that shown based on differences in inception dates, fees and sales charges. Performance assumes reinvestment of dividends and capital gain distributions. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS:
Barclays Comoposite Phoenix Phoenix Capital U.S. Index for Balanced Fund, Balanced Fund, S&P 500(R) Aggregate Balanced Class A Class B Index Bond Index Fund -------------- -------------- ---------- ----------- ---------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 $10,000 3/31/00 10,404 10,956 11,824 10,187 11,176 3/31/01 9,780 10,220 9,240 11,463 10,146 3/31/02 10,288 10,672 9,263 12,076 10,419 3/31/03 9,039 9,301 6,970 13,488 9,247 3/31/04 11,179 11,429 9,418 14,217 11,337 3/31/05 11,460 11,621 10,046 14,380 11,849 3/31/06 12,290 12,377 11,225 14,705 12,788 3/37/07 13,494 13,484 12,553 15,674 14,036 3/31/08 13,275 13,157 11,916 16,876 14,041 3/31/09 9,829 9,684 7,377 17,403 10,762
For information regarding the indexes and certain investment terms, see the glossary on page 3. 11 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- MUNICIPAL BONDS--4.3% ARIZONA--0.6% Salt River Project Agricultural Improvement & Power District 08-A, 5.000%, 1/1/38 $ 3,215 $ 3,167 -------- CALIFORNIA--1.2% Alameda Corridor Transportation Authority Taxable Subordinate Series D (MBIA Insured) 6.250%, 10/1/14 500 536 99-C (MBIA Insured) 6.600%, 10/1/29 2,750 2,463 Contra Costa County Pension Obligation Taxable (FSA Insured) 6.100%, 6/1/11 500 527 San Luis Obispo County Pension Obligation Taxable Series A (MBIA Insured) 3.940%, 9/1/12 330 336 Sonoma County Pension Obligation Taxable (FSA Insured) 6.625%, 6/1/13 2,810 2,917 -------- 6,779 -------- DELAWARE--0.5% Delaware Transportation Authority Series A (FSA Insured) 5.000%, 7/1/19 2,705 2,971 -------- FLORIDA--0.1% Miami-Dade County Educational Facilities Authority Taxable Series C 5.480%, 4/1/16 350 344 -------- MAINE--0.1% Bangor Pension Obligation Taxable Series B (FGIC Insured) 5.940%, 6/1/13 675 739 -------- PAR VALUE VALUE --------- -------- MINNESOTA--0.8% State of Minnesota 5.000%, 8/1/19 $ 3,700 $ 4,169 -------- MISSISSIPPI--0.1% Mississippi Development Bank Jackson County Special Obligation Taxable Series A (FSA Insured) 5.000%, 6/1/11 340 352 -------- NEW JERSEY--0.1% Monroe Township Pension Obligation Taxable 5.000%, 8/15/13 590 627 New Jersey Turnpike Authority Taxable Series B Prerefunded 1/1/15 @ 100 (AMBAC Insured) 4.252%, 1/1/16 5 5 Series B (AMBAC Insured) 4.252%, 1/1/16 150 144 -------- 776 -------- NEW YORK--0.1% City of Buffalo Taxable Series A (AMBAC Insured) 4.710%, 2/1/13 420 425 -------- PENNSYLVANIA--0.5% City of Pittsburgh Pension Obligation Taxable Series A (FGIC Insured) 6.500%, 3/1/14 1,100 1,119 Series C (FGIC Insured) 6.500%, 3/1/17 1,800 1,793 -------- 2,912 -------- TEXAS--0.1% State of Texas Taxable Series C 4.700%, 8/1/09 625 631 -------- See Notes to Financial Statements 12 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- VIRGINIA--0.1% Tobacco Settlement Financing Corp. Taxable 07- A1, 6.706%, 6/1/46 $ 995 $ 490 -------- ------------------------------------------------------------------------------ TOTAL MUNICIPAL BONDS (IDENTIFIED COST $23,985) 23,755 ------------------------------------------------------------------------------ MORTGAGE-BACKED SECURITIES--17.2% AGENCY--7.4% FHLMC R010-AB 5.500%, 12/15/19 1,443 1,472 FNMA 6.000%, 5/1/17 195 205 4.500%, 4/1/19 393 407 4.000%, 7/1/19 65 66 4.000%, 6/1/20 1,448 1,476 5.000%, 8/1/20 89 93 6.000%, 12/1/32 399 419 5.500%, 4/1/34 799 832 6.000%, 10/1/34 257 269 6.000%, 5/1/35 502 526 5.500%, 10/1/35 665 692 5.500%, 5/1/36 862 896 5.500%, 4/1/37 832 864 6.000%, 2/1/38 517 540 5.500%, 7/1/38 457 475 TBA 4.000%, 4/15/39 (6) 1,700 1,711 TBA 4.500%, 4/15/39 (6) 4,600 4,699 TBA 5.000%, 4/15/39 (6) 7,625 7,866 TBA 5.500%, 4/15/39 (6) 5,350 5,552 TBA 6.000%, 4/15/39 (6) 6,625 6,919 GNMA 6.500%, 8/15/23 60 63 6.500%, 11/15/23 598 629 6.500%, 11/15/23 135 142 6.500%, 11/15/23 232 244 6.500%, 12/15/23 62 65 6.500%, 12/15/23 80 84 6.500%, 12/15/23 48 50 6.500%, 1/15/24 196 207 6.500%, 1/15/24 52 54 6.500%, 1/15/24 235 249 6.500%, 1/15/24 23 24 6.500%, 1/15/24 8 9 6.500%, 1/15/24 57 60 6.500%, 2/15/24 315 332 6.500%, 2/15/24 22 23 PAR VALUE VALUE --------- -------- AGENCY--CONTINUED 6.500%, 2/15/24 $ 136 $ 143 6.500%, 2/15/24 41 43 6.500%, 3/15/24 79 84 6.500%, 3/15/24 192 202 6.500%, 4/15/24 429 453 6.500%, 4/15/24 22 23 6.500%, 4/15/24 56 59 6.500%, 4/15/24 14 15 6.500%, 5/15/24 8 8 6.500%, 1/15/26 170 181 6.500%, 1/15/26 61 65 6.500%, 1/15/26 20 21 6.500%, 2/15/26 57 61 6.500%, 3/15/26 108 114 6.500%, 3/15/26 98 104 6.500%, 4/15/26 12 13 6.500%, 4/15/26 26 27 6.500%, 4/15/26 138 146 6.500%, 6/15/28 21 23 6.500%, 6/15/28 19 20 6.500%, 7/15/31 198 211 6.500%, 11/15/31 32 34 6.500%, 2/15/32 28 30 6.500%, 3/15/32 30 32 6.500%, 4/15/32 70 74 6.000%, 8/15/32 645 679 -------- 41,079 -------- NON-AGENCY--9.8% Banc of America Commercial Mortgage, Inc. 05-6, AM 5.180%, 9/10/47 (3) 575 283 Bear Stearns Adjustable Rate Mortgage Trust 05-12, 13A1 5.445%, 2/25/36 (3) 1,815 992 Bear Stearns Commercial Mortgage Securities 07-PW18, AM 6.084%, 6/11/50 2,250 1,080 06-PW12, A4 5.718%, 9/11/38(3) 3,185 2,715 05-PWR8, A2 4.484%, 6/11/41 370 345 Citigroup Mortgage Loan Trust, Inc. 05-5, 2A3 5.000%, 8/25/35 1,255 1,050 See Notes to Financial Statements 13 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- NON-AGENCY--CONTINUED Citigroup/Deutsche Bank Commercial Mortgage Trust 05-CD1, AM 5.226%, 7/15/44(3) $ 2,240 $ 1,115 06-CD2, A4 5.363%, 1/15/46(3) 3,120 2,405 Credit Suisse First Boston Mortgage Securities Corp. 99-C1, A2 7.290%, 9/15/41 145 146 Credit Suisse Mortgage Capital Certificates 06-C1, A3 5.552%, 2/15/39(3) 575 472 06-C1, A4 5.552%, 2/15/39(3) 5,490 4,451 Crown Castle Towers LLC 05-1A, AFX 144A 4.643%, 6/15/35 (2) 2,510 2,397 First Horizon Asset Securities, Inc. 05-AR1, 2A1 4.999%, 4/25/35 (3) 1,778 1,202 GE Capital Commercial Mortgage Corp. 03-C1,C 4.975%, 1/10/38(3) 655 537 04-C3, A4 5.189%, 7/10/39(3) 350 289 GMAC Commercial Mortgage Securities, Inc. 03-C2, A2 5.486%, 5/10/40 (3) 555 536 Greenwich Capital Commercial Funding Corp. 04-GG1, A7 5.317%, 6/10/36 (3) 500 427 GS Mortgage Securities Corp. II 05-GG4, AJ 4.782%, 7/10/39 2,500 1,086 07-GG10, A4 5.799%, 8/10/45(3) 1,700 1,160 JPMorgan Chase Commercial Mortgage Securities Corp. 01-CIBC, A3 6.260%, 3/15/33 7,447 7,532 05-LDP5, AM 5.222%, 12/15/44(3) 630 306 07-LD12, A4 5.882%, 2/15/51(3) 1,450 1,025 PAR VALUE VALUE --------- -------- NON-AGENCY--CONTINUED Lehman Brothers - UBS Commercial Mortgage Trust 04-C4, A2 4.567%, 6/15/29(3) $ 118 $ 118 06-C3, AM 5.712%, 3/15/39(3) 335 166 06-C6, A4 5.372%, 9/15/39 2,105 1,515 07-C2, A2 5.303%, 2/15/40 4,150 3,434 07-C6, A2 5.845%, 7/15/40 2,000 1,690 07-C7, A3 5.866%, 9/15/45(3) 1,700 1,191 Merrill Lynch Mortgage Trust 06-C1, AM 5.657%, 5/12/39 (3) 2,200 1,078 Morgan Stanley Capital I 06-T23, A4 5.811%, 8/12/41 (3) 2,570 2,293 PNC Mortgage Acceptance Corp. 00-C2, A2 7.300%, 10/12/33 (3) 981 996 SBA Commercial Mortgage Backed Securities Trust 06-1A, A 144A 5.314%, 11/15/36 (2) 1,800 1,647 Timberstar Trust 06-1A, A 144A 5.668%, 10/15/36 (2) 2,250 1,800 Wachovia Bank Commercial Mortgage Trust 04-C12, A4 5.229%, 7/15/41(3) 300 250 07-C30, A5 5.342%, 12/15/43 1,000 624 05-C22, AM 5.315%, 12/15/44(3) 260 129 07-C33, A4 5.903%, 2/15/49(3) 1,450 890 Washington Mutual Mortgage Pass-Through Certificates, Inc. 05-AR3, A2 4.638%, 3/25/35 (3) 102 65 See Notes to Financial Statements 14 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- NON-AGENCY--CONTINUED Wells Fargo Mortgage Backed Securities Trust 04-EE, 2A3 4.161%, 12/25/34(3) $ 1,204 $ 669 04-BB, A1 4.558%, 1/25/35(3) 1,389 844 05-AR4, 2A1 4.537%, 4/25/35(3) 3,248 2,376 05-AR4, 2A2 4.537%, 4/25/35(3) 617 460 -------- 53,786 ------------------------------------------------------------------------------ TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $109,636) 94,865 ------------------------------------------------------------------------------ ASSET-BACKED SECURITIES--1.9% AmeriCredit Automobile Receivables Trust 06-BG, A3 5.210%, 10/6/11 539 530 Associates Manufactured Housing Pass-Through Certificate 97-2, A6 7.075%, 3/15/28 (3) 492 480 Bayview Financial Acquisition Trust 06-A, 1A2 5.483%, 2/28/41 (3) 3,250 2,551 Bombardier Capital Mortgage Securitization Corp. 99-A, A3 5.980%, 1/15/18 (3) 673 400 Capital One Auto Finance Trust 07-B, A3A 5.030%, 4/15/12 758 745 Carmax Auto Owner Trust 07-2, A3 5.230%, 12/15/11 1,628 1,648 Dunkin Securitization 06-1, M1 144A 8.285%, 6/20/31 (2) 1,025 673 GMAC Mortgage Corp. Loan Trust 05-HE2, A3 4.622%, 11/25/35(3) 327 305 07-HE1, A2 5.621%, 8/25/37(3) 1,000 432 PAR VALUE VALUE --------- -------- JPMorgan Mortgage Acquisition Corp. 06-CW2, AF3 5.777%, 8/25/36(3) $ 1,700 $ 904 06-CW2, AF4 6.080%, 8/25/36(3) 1,700 639 Renaissance Home Equity Loan Trust 06-1, AF2 5.533%, 5/25/36 (3) 86 85 Residential Funding Mortgage Securities II, Inc. 06-HSA1, A3 5.230%, 2/25/36 (3) 190 59 Wachovia Auto Loan Owner Trust 06-2A, A3 144A 5.230%, 8/22/11 (2) 897 901 ------------------------------------------------------------------------------ TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $14,258) 10,352 ------------------------------------------------------------------------------ CORPORATE BONDS+--15.0% CONSUMER DISCRETIONARY--1.1% Best Buy Co., Inc. 6.750%, 7/15/13 500 476 Brunswick Corp. 11.750%, 8/15/13 700 462 Comcast Corp. 5.300%, 1/15/14 575 558 COX Communications, Inc. 144A 6.250%, 6/1/18 (2) 800 711 Daimler Finance North America LLC 6.500%, 11/15/13 425 385 Hasbro, Inc. 6.300%, 9/15/17 775 709 MGM MIRAGE 8.500%, 9/15/10 45 19 Mohawk Industries, Inc. 6.625%, 1/15/16 925 682 Reed Elsevier Capital, Inc. 8.625%, 1/15/19 205 210 Royal Caribbean Cruises Ltd. 7.250%, 6/15/16 875 416 Seneca Gaming Corp. Series B 7.250%, 5/1/12 765 493 Staples, Inc. 9.750%, 1/15/14 150 157 See Notes to Financial Statements 15 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- CONSUMER DISCRETIONARY--CONTINUED Time Warner Cable, Inc. 5.850%, 5/1/17 $ 435 $ 390 Videotron/Quebec Media, Inc. 6.375%, 12/15/15 650 592 -------- 6,260 -------- CONSUMER STAPLES--0.4% BAT International Finance plc 144A 9.500%, 11/15/18 (2) 200 227 Campbell Soup Co. 5.000%, 12/3/12 175 185 Reynolds American, Inc. 7.300%, 7/15/15 950 870 Tate & Lyle International Finance plc 144A 6.625%, 6/15/16 (2) 900 791 Tyson Foods, Inc. 7.800%, 4/1/16 235 204 -------- 2,277 -------- ENERGY--1.7% Buckeye Partners LP 6.050%, 1/15/18 250 218 Chesapeake Energy Corp. 6.875%, 11/15/20 650 512 Denbury Resources, Inc. 7.500%, 12/15/15 655 573 EnCana Corp. 5.900%, 12/1/17 510 481 Helix Energy Solutions Group, Inc. 144A 9.500%, 1/15/16 (2) 230 137 Kinder Morgan Finance Co. 5.700%, 1/5/16 2,420 2,045 Marathon Oil Corp. 7.500%, 2/15/19 250 252 Motiva Enterprises LLC 144A 5.200%, 9/15/12 (2)(5) 1,000 1,035 NGPL PipeCo. LLC 144A 6.514%, 12/15/12 (2) 925 883 Petro-Canada 6.050%, 5/15/18 288 248 PetroHawk Energy Corp. 144A 10.500%, 8/1/14 (2) 350 350 PAR VALUE VALUE --------- -------- ENERGY--CONTINUED Petropower I Funding Trust 144A 7.360%, 2/15/14 (2) $ 1,187 $ 1,056 Plains Exploration & Production Co. 7.750%, 6/15/15 415 359 Swift Energy Co. 7.125%, 6/1/17 650 380 TEPPCO Partners LP 7.625%, 2/15/12 420 416 Weatherford International Ltd. 9.625%, 3/1/19 255 264 -------- 9,209 -------- FINANCIALS--6.3% American Express Credit Corp. Series C 7.300%, 8/20/13 750 696 Assurant, Inc. 5.625%, 2/15/14 840 704 Bank of America Corp. 5.750%, 8/15/16 800 525 5.750%, 12/1/17 545 458 5.650%, 5/1/18 800 667 Bank of New York/ Mellon Corp. (The) 4.950%, 11/1/12(5) 950 970 Bear Stearns Cos., Inc. (The) 7.250%, 2/1/18(5) 900 929 BlackRock, Inc. 6.250%, 9/15/17(5) 1,025 985 Bosphorus Financial Services Ltd. 144A 3.034%, 2/15/12 (2)(3) 938 807 CIT Group Holdings, Inc. 5.400%, 1/30/16 1,000 599 Citigroup, Inc. 5.625%, 8/27/12(5) 1,600 1,165 5.000%, 9/15/14 280 186 CME Group, Inc. 5.400%, 8/1/13 350 355 Credit Suisse New York 5.000%, 5/15/13 900 870 Deutsche Bank AG 4.875%, 5/20/13 300 294 See Notes to Financial Statements 16 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- FINANCIALS--CONTINUED Ford Motor Credit Co. LLC 5.544%, 4/15/09(3) $ 175 $ 172 8.625%, 11/1/10 480 382 9.875%, 8/10/11 835 632 7.800%, 6/1/12 770 522 General Electric Capital Corp. 5.375%, 10/20/16(5) 1,200 1,054 GMAC LLC(2) 144A 6.875%, 9/15/11(2) 310 220 144A 6.750%, 12/1/14(2) 245 143 144A 6.875%, 8/28/12(2) 262 176 Goldman Sachs Group, Inc. (The) 5.950%, 1/18/18 705 640 6.150%, 4/1/18(5) 1,100 1,005 HBOS plc 144A 5.375%, 11/1/15 (2)(3) 3,250 1,634 HRPT Properties Trust 5.750%, 11/1/15 900 571 International Lease Finance Corp. 4.750%, 1/13/12 875 511 Janus Capital Group, Inc. 6.500%, 6/15/12 525 333 Jefferson-Pilot Corp. 4.750%, 1/30/14 850 366 JPMorgan Chase & Co. 5.250%, 5/1/15 800 717 Series 1, 7.900%, 12/31/49(3) 536 344 Merrill Lynch & Co., Inc. 6.110%, 1/29/37 905 450 National Capital Trust II 144A 5.486%, 12/29/49 (2)(3)(5) 2,700 1,215 National City Bank 1.352%, 6/29/09(3) 725 721 Northern Trust Co. (The) 6.500%, 8/15/18 800 841 Petroplus Finance Ltd. 144A 6.750%, 5/1/14 (2) 500 373 ProLogis 6.625%, 5/15/18 415 210 Rabobank Capital Funding II 144A 5.260%, 12/29/49 (2)(3) 1,300 585 Realty Income Corp. 6.750%, 8/15/19 400 276 SLM Corp. 1.371%, 2/1/10(3)(5) 5,550 4,772 SunTrust Banks, Inc. 5.250%, 11/5/12(5) 980 953 PAR VALUE VALUE --------- -------- FINANCIALS--CONTINUED UFJ Finance AEC 6.750%, 7/15/13(5) $ 900 $ 926 Wachovia Bank NA 5.000%, 8/15/15 600 511 Wachovia Corp. 4.875%, 2/15/14(5) 1,145 961 Westfield Capital Corp. Ltd./Westfield Finance Authority 144A 5.125%, 11/15/14 (2)(5) 1,175 908 Westfield Capital Corp. Ltd./Westfield Finance Authority 144A 4.375%, 11/15/10(2) 175 162 Zions Bancorp. 5.650%, 5/15/14(5) 1,750 1,291 -------- 34,787 -------- HEALTH CARE--0.3% Fisher Scientific International, Inc. 6.750%, 8/15/14 25 25 Pfizer, Inc. 5.350%, 3/15/15 500 527 Quest Diagnostics, Inc. 6.400%, 7/1/17 930 888 -------- 1,440 -------- INDUSTRIALS--2.1% American Airlines, Inc. 01-1, 6.977%, 5/23/21 2,060 1,051 Continental Airlines, Inc. 98-1A, 6.648%, 9/15/17 1,136 897 Equifax, Inc. 6.300%, 7/1/17 750 594 ITW Cupids Financing Trust I 144A 6.550%, 12/31/11 (2)(5) 5,000 5,090 Masco Corp. 5.850%, 3/15/17 540 338 Owens Corning, Inc. 6.500%, 12/1/16 180 132 Pitney Bowes, Inc. 4.750%, 5/15/18(5) 1,250 1,176 Rockwell Collins, Inc. 4.750%, 12/1/13(5) 1,000 1,008 Terex Corp. 7.375%, 1/15/14 390 339 United Airlines, Inc. 01-A1, 6.071%, 3/1/13 51 50 See Notes to Financial Statements 17 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- INDUSTRIALS--CONTINUED United Rentals North America, Inc. 6.500%, 2/15/12 $ 720 $ 580 Waste Management, Inc. 5.000%, 3/15/14 175 167 -------- 11,422 -------- INFORMATION TECHNOLOGY--0.8% Broadridge Financial Solutions, Inc. 6.125%, 6/1/17 900 757 Intuit, Inc. 5.750%, 3/15/17 221 192 Jabil Circuit, Inc. 8.250%, 3/15/18 610 458 Mettler-Toledo International, Inc. 4.850%, 11/15/10(5) 2,000 1,974 Tyco Electronic Group SA 6.000%, 10/1/12 350 298 Xerox Corp. 6.750%, 2/1/1 1,040 794 -------- 4,473 -------- MATERIALS--0.9% Agrium, Inc. 6.750%, 1/15/19 700 652 ArcelorMittal 6.125%, 6/1/18 675 487 Catalyst Paper Corp. 7.375%, 3/1/14 570 205 CRH America, Inc. 6.000%, 9/30/16 835 589 8.125%, 7/15/18 500 390 Nova Chemicals Corp. 5.720%, 11/15/13(3) 670 506 Rio Tinto Finance USA Ltd. 6.500%, 7/15/18 875 766 Verso Paper Holdings LLC/ Verso Paper, Inc. Series B 4.920%, 8/1/14 (3) 296 87 Vulcan Materials Co. 5.600%, 11/30/12 665 638 Xstrata Canada Corp. 5.500%, 6/15/17 845 583 -------- 4,903 -------- TELECOMMUNICATION SERVICES--0.6% Frontier Communication Corp. 6.250%, 1/15/13 640 583 OJSC Vimpel Communications (VIP Finance Ireland Ltd.) 144A 9.125%, 4/30/18 (2) 465 288 PAR VALUE VALUE --------- -------- TELECOMMUNICATION SERVICES--CONTINUED Qwest Corp. 7.875%, 9/1/11 $ 410 $ 404 6.500%, 6/1/17 570 473 Telecom Italia Capital SA 6.999%, 6/4/18(5) 1,000 907 Verizon Communications, Inc. 4.900%, 9/15/15 720 688 -------- 3,343 -------- UTILITIES--0.8% AES Corp. (The) 7.750%, 10/15/15 780 684 Allegheny Energy Supply Co. LLC 144A 8.250%, 4/15/12 (2) 390 395 AmeriGas Partners LP 7.250%, 5/20/15 1,000 945 Duke Energy Corp. 6.300%, 2/1/14 103 105 Electricite de France 144A 6.500%, 1/26/19 (2) 255 263 Entergy Gulf States, Inc. 5.250%, 8/1/15 300 271 Great River Energy 144A 5.829%, 7/1/17 (2) 895 924 Midwest Generation LLC Series B 8.560%, 1/2/16 326 302 Northeast Utilities 5.650%, 6/1/13 715 676 -------- 4,565 ------------------------------------------------------------------------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $100,198) 82,679 ------------------------------------------------------------------------------ LOAN AGREEMENTS+(3)--0.9% CONSUMER DISCRETIONARY--0.3% Charter Communications Operating LLC Tranche B, 3.256%, 3/6/14 889 725 Ford Motor Co. Tranche B, 5.000%, 12/16/13 982 476 Lamar Media Corp. Tranche F, 2.000%, 3/31/14 140 131 MCC Georgia LLC Tranche E, 6.500%, 1/3/16 114 106 -------- 1,438 -------- See Notes to Financial Statements 18 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) PAR VALUE VALUE --------- -------- CONSUMER STAPLES--0.1% Yankee Candle Co., Inc. Tranche B, 2.833%, 2/6/14 $ 543 $ 366 -------- ENERGY--0.0% Helix Energy Solutions Group, Inc. Tranche 3.290%, 7/1/13 223 179 -------- HEALTH CARE--0.0% Health Management Associates, Inc. Tranche B, 3.209%, 2/28/14 139 114 -------- INFORMATION TECHNOLOGY--0.1% CommScope, Inc. Tranche B, 3.421%, 12/27/14 745 643 -------- MATERIALS--0.3% Compass Minerals International, Inc. Tranche B, 2.350%, 12/22/12 517 473 Georgia-Pacific Corp. Tranche B-1, 3.236%, 12/20/12 1,033 918 -------- 1,391 -------- TELECOMMUNICATION SERVICES--0.0% Level 3 Communications, Inc. Tranche 3.158%, 3/13/14 65 49 -------- UTILITIES--0.1% NRG Energy, Inc. Tranche B, 2.460%, 2/1/13 369 334 Letter of Credit 2.959%, 2/1/13 197 177 Texas Competitive Electric Holdings Co. LLC Tranche B-2, 4.154%, 10/10/14 241 160 -------- 671 ------------------------------------------------------------------------------ TOTAL LOAN AGREEMENTS (IDENTIFIED COST $6,092) 4,851 ------------------------------------------------------------------------------ SHARES VALUE --------- -------- PREFERRED STOCK+--0.0% FINANCIALS--0.0% Preferred Blocker, Inc. (GMAC) Pfd. 7.000% 181 $ 36 -------- ------------------------------------------------------------------------------ TOTAL PREFERRED STOCK (IDENTIFIED COST $57) 36 ------------------------------------------------------------------------------ COMMON STOCKS+--58.0% CONSUMER DISCRETIONARY--3.9% NIKE, Inc. Class B 161,600 7,577 McDonald's Corp. 133,900 7,307 Under Armour, Inc. Class A(4) 419,400 6,891 -------- 21,775 -------- CONSUMER STAPLES--6.7% Altria Group, Inc. 440,600 7,058 Bunge Ltd. 133,000 7,535 Costco Wholesale Corp. 167,000 7,735 PepsiCo, Inc. 150,000 7,722 Philip Morris International, Inc. 193,900 6,899 -------- 36,949 -------- ENERGY--8.2% Chesapeake Energy Corp. 192,700 3,287 ConocoPhillips 193,900 7,593 Halliburton Co. 426,400 6,596 Massey Energy Co. 314,800 3,186 Occidental Petroleum Corp. 123,000 6,845 Petroleo Brasileiro SA ADR 239,400 7,295 St. Mary Land & Exploration Co. 254,900 3,372 Valero Energy Corp. 401,100 7,180 -------- 45,354 -------- FINANCIALS--6.5% Allstate Corp. (The) 377,800 7,235 Goldman Sachs Group, Inc. (The) 70,500 7,474 Hudson City Bancorp, Inc. 617,700 7,221 Reinsurance Group of America, Inc. 244,000 7,903 Wells Fargo & Co. 431,100 6,139 -------- 35,972 -------- See Notes to Financial Statements 19 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) SHARES VALUE ---------- --------- HEALTH CARE--8.0% Celgene Corp.(4) 157,400 $ 6,989 Gilead Sciences, Inc.(4) 164,400 7,615 Johnson & Johnson 146,500 7,706 Merck & Co., Inc. 275,400 7,367 St. Jude Medical, Inc.(4) 198,700 7,219 UnitedHealth Group, Inc. 338,200 7,078 -------- 43,974 -------- INDUSTRIALS--7.3% Boeing Co. (The) 100,000 3,558 Caterpillar, Inc. 253,000 7,074 Continental Airlines, Inc. Class B(4) 820,400 7,228 Foster Wheeler AG(4) 392,800 6,862 L-3 Communications Holdings, Inc. 117,000 7,932 Union Pacific Corp. 179,000 7,359 -------- 40,013 -------- INFORMATION TECHNOLOGY--9.9% Cisco Systems, Inc.(4) 450,000 7,546 Corning, Inc. 594,000 7,882 Hewlett-Packard Co. 256,100 8,211 International Business Machines Corp. 80,700 7,819 Microsoft Corp. 437,700 8,041 Nokia Oyj Sponsored ADR 627,100 7,318 QUALCOMM, Inc. 195,600 7,611 -------- 54,428 -------- MATERIALS--4.9% Alcoa, Inc. 615,800 4,520 Freeport-McMoRan Copper & Gold, Inc. 179,000 6,822 Nucor Corp. 209,000 7,977 Potash Corp. of Saskatchewan, Inc. 96,000 7,758 -------- 27,077 -------- TELECOMMUNICATION SERVICES--2.6% AT&T, Inc. 288,900 7,281 Verizon Communications, Inc. 241,300 7,287 -------- 14,568 -------- -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $328,099) 320,110 -------------------------------------------------------------------------------- SHARES VALUE ---------- -------- EXCHANGE TRADED FUNDS--1.3% PowerShares Deutsche Bank Agriculture Fund(4) 302,300 $ 7,403 -------------------------------------------------------------------------------- TOTAL EXCHANGE TRADED FUNDS (IDENTIFIED COST $7,533) 7,403 -------------------------------------------------------------------------------- TOTAL LONG TERM INVESTMENTS--98.6% (IDENTIFIED COST $589,858) 544,051 -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS--4.6% MONEY MARKET MUTUAL FUNDS--4.6% State Street Institutional Liquid Reserves Fund (seven-day effective yield 0.577%) 25,259,705 25,260 -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $25,260) 25,260 -------------------------------------------------------------------------------- TOTAL INVESTMENTS--103.2% (IDENTIFIED COST $615,118) 569,311(1) Other assets and liabilities, net--(3.2)% (17,888) NET ASSETS--100.0% $551,423 ======== + Security classifications are based on sectors. COUNTRY WEIGHTINGS as of 3/31/09* -------------------------------------------------------------------------------- United States 92% Canada 2 Australia 1 Brazil 1 Finland 1 Switzerland 1 United Kingdom 1 Other 1 -------------------------------------------------------------------------------- * FOREIGN SECURITY COUNTRY DETERMINATION: A combination of the following criteria is used to assign the countries of risk listed in the table shown above: country of incorporation, actual building address, primary exchange on which security is traded and country in which the greatest percentage of company revenue is generated. -------------------------------------------------------------------------------- See Notes to Financial Statements 20 VIRTUS BALANCED FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 Security abbreviation definitions are located in the glossary starting on page 3. FOOTNOTE LEGEND: (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 8, Federal Income Tax Information in the Notes to Financial Statements. (2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2009, these securities amounted to a value of $25,791 or 4.7% of net assets. (3) Variable or step coupon security; interest rate shown reflects the rate currently in effect. (4) Non-income producing. (5) All or a portion segregated as collateral for when-issued securities. (6) When-issued security. See Notes to Financial Statements 21 VIRTUS BALANCED FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2009 (Amounts reported in thousands except shares and per share amounts) ASSETS Investment securities at value+ ................................................ $ 569,311 Cash ........................................................................... 49 Receivables Investment securities sold .................................................. 6,750 Fund shares sold ............................................................ 47 Dividends ................................................................... 739 Interest .................................................................... 2,373 Prepaid expenses ............................................................... 34 ----------- Total assets .............................................................. 579,303 ----------- LIABILITIES Payables Fund shares repurchased ..................................................... 441 Investment securities purchased ............................................. 26,715 Investment advisory fees .................................................... 269 Distribution and service fees ............................................... 151 Administration fees ......................................................... 41 Transfer agent fees and expenses ............................................ 146 Trustees' fee and expenses .................................................. 10 Professional fees ........................................................... 33 Other accrued expenses ...................................................... 74 ----------- Total liabilities ......................................................... 27,880 ----------- NET ASSETS ..................................................................... $ 551,423 =========== NET ASSETS CONSIST OF: Capital paid in on shares of beneficial interest ............................ $ 746,514 Accumulated undistributed net investment income (loss) ...................... 385 Accumulated undistributed net realized gain (loss) .......................... (149,669) Net unrealized appreciation (depreciation) .................................. (45,807) ----------- NET ASSETS ..................................................................... $ 551,423 =========== CLASS A Net asset value per share (net assets/shares outstanding) ...................... $9.42 Offering price per share $9.42/(1-5.75%) ....................................... $9.99 Shares of beneficial interest outstanding, no par value, unlimited authorization 53,930,179 Net Assets ..................................................................... $ 508,204 CLASS B Net asset value (net assets/shares outstanding) and offering price per share $9.39 Shares of beneficial interest outstanding, no par value, unlimited authorization 625,374 Net Assets ..................................................................... $ 5,869 CLASS C Net asset value (net assets/shares outstanding) and offering price per share $9.38 Shares of beneficial interest outstanding, no par value, unlimited authorization 3,983,203 Net Assets ..................................................................... $ 37,350 +Investment securities at cost ................................................. $ 615,118
See Notes to Financial Statements 22 VIRTUS BALANCED FUND STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2009 (Reported in thousands) INVESTMENT INCOME Dividends ...................................................................... $ 10,875 Interest ....................................................................... 18,825 Security lending ............................................................... 6 Foreign taxes withheld ......................................................... (5) --------- Total investment income ........................................................ 29,701 --------- EXPENSES Investment advisory fees ....................................................... 3,966 Service fees, Class A .......................................................... 1,657 Distribution and service fees, Class B ......................................... 89 Distribution and service fees, Class C ......................................... 493 Administration fees ............................................................ 609 Transfer agent fees and expenses ............................................... 1,117 Custodian fees ................................................................. 115 Printing fees and expenses ..................................................... 63 Professional fees .............................................................. 50 Registration fees .............................................................. 50 Trustees fee and expenses ...................................................... 65 Miscellaneous expenses ......................................................... 125 --------- Total expenses ............................................................ 8,399 Custodian fees paid indirectly ................................................. (3) --------- Net expenses .............................................................. 8,396 --------- NET INVESTMENT INCOME (LOSS) ................................................... 21,305 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ........................................ (146,115) Net realized gain (loss) on foreign currency transactions ...................... (7) Net change in unrealized appreciation (depreciation) on investments ............ (85,879) Net change in unrealized appreciation (depreciation) on foreign currency translations ................................................ (9) --------- NET GAIN (LOSS) ON INVESTMENTS ................................................. (232,010) --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ................ $(210,705) =========
See Notes to Financial Statements 23 VIRTUS BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS (Reported in thousands)
4/1/08 - 11/1/07 - 11/1/06 - 3/31/09 3/31/08 10/31/07 --------- ---------- ---------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) .................... $ 21,305 $ 10,023 $ 23,368 Net realized gain (loss) ........................ (146,122) 3,037 64,063 Net change in unrealized appreciation (depreciation) ................................ (85,888) (87,976) 13,882 --------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............................... (210,705) (74,916) 101,313 --------- ---------- ---------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A .................. (20,336) (11,439) (21,517) Net investment income, Class B .................. (202) (129) (273) Net investment income, Class C .................. (1,155) (634) (1,137) Net realized short-term gains, Class A .......... -- (9,869) (16,679) Net realized short-term gains, Class B .......... -- (159) (351) Net realized short-term gains, Class C .......... -- (763) (1,320) Net realized long-term gains, Class A ........... (2,742) (47,385) (69,262) Net realized long-term gains, Class B ........... (39) (763) (1,456) Net realized long-term gains, Class C ........... (206) (3,663) (5,481) --------- ---------- ---------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ............................... (24,680) (74,804) (117,476) --------- ---------- ---------- FROM SHARE TRANSACTIONS: SALE OF SHARES Class A (978, 368 and 1,203 shares, respectively) 11,036 5,173 18,155 Class B (64, 37 and 128 shares, respectively) ... 711 524 1,925 Class C (52, 16 and 33 shares, respectively) .... 551 229 489 REINVESTMENT OF DISTRIBUTIONS Class A (1,850, 4,570 and 6,815 shares, respectively) ................................. 20,839 64,121 100,185 Class B (19, 69 and 132 shares, respectively) ... 219 966 1,926 Class C (101, 330 and 494 shares, respectively) . 1,132 4,614 7,223 SHARES REPURCHASED Class A (9,700, 3,536 and 10,465 shares, respectively) ................................. (108,927) (49,860) (158,291) Class B (371, 167 and 603 shares, respectively) . (4,233) (2,351) (9,022) Class C (777, 371 and 799 shares, respectively) . (8,695) (5,223) (12,026) --------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ............................ (87,367) 18,193 (49,436) --------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS ........... (322,752) (131,527) (65,599) --------- ---------- ---------- NET ASSETS Beginning of period ............................. 874,175 1,005,702 1,071,301 --------- ---------- ---------- END OF PERIOD ................................... $ 551,423 $ 874,175 $1,005,702 ========= ========== ========== Accumulated undistributed net investment income (loss) at end of period ................ $ 385 $ 518 $ 2,284
See Notes to Financial Statements 24 THIS PAGE INTENTIONALLY BLANK. VIRTUS BALANCED FUND FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET NET REALIZED TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(1) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS ------------------------------------------------------------------------------------------------------------------------------------ CLASS A 4/1/08 to 3/31/09 $13.19 0.35 (3.71) (3.36) (0.36) (0.05) (0.41) 11/1/07 to 3/31/08 15.48 0.16 (1.28) (1.12) (0.19) (0.98) (1.17) 11/1/06 to 10/31/07 15.74 0.35 1.16 1.51 (0.35) (1.42) (1.77) 11/1/05 to 10/31/06 14.55 0.34 1.53 1.87 (0.34) (0.34) (0.68) 11/1/04 to 10/31/05 14.98 0.32 0.18 0.50 (0.32) (0.61) (0.93) 11/1/03 to 10/31/04 14.31 0.29 0.69 0.98 (0.31) -- (0.31) CLASS B 4/1/08 to 3/31/09 $13.13 0.26 (3.67) (3.41) (0.28) (0.05) (0.33) 11/1/07 to 3/31/08 15.41 0.11 (1.27) (1.16) (0.14) (0.98) (1.12) 11/1/06 to 10/31/07 15.69 0.24 1.13 1.37 (0.23) (1.42) (1.65) 11/1/05 to 10/31/06 14.50 0.23 1.53 1.76 (0.23) (0.34) (0.57) 11/1/04 to 10/31/05 14.93 0.21 0.18 0.39 (0.21) (0.61) (0.82) 11/1/03 to 10/31/04 14.26 0.18 0.69 0.87 (0.20) -- (0.20) CLASS C 4/1/08 to 3/31/09 $13.12 0.26 (3.67) (3.41) (0.28) (0.05) (0.33) 11/1/07 to 3/31/08 15.40 0.11 (1.27) (1.16) (0.14) (0.98) (1.12) 11/1/06 to 10/31/07 15.68 0.23 1.14 1.37 (0.23) (1.42) (1.65) 11/1/05 to 10/31/06 14.49 0.23 1.53 1.76 (0.23) (0.34) (0.57) 4/19/05(5) to 10/31/05 14.47 0.10 0.01 0.11 (0.09) -- (0.09) RATIO OF NET NET NET INVESTMENT CHANGE ASSET ASSETS, RATIO OF INCOME (LOSS) IN NET VALUE, END OF EXPENSES TO TO AVERAGE PORTFOLIO ASSET END OF TOTAL PERIOD AVERAGE NET TURNOVER VALUE PERIOD RETURN(2) (IN THOUSANDS) NET ASSETS ASSETS RATE ------------------------------------------------------------------------------------------------------------------------------------ CLASS A 4/1/08 to 3/31/09 (3.77) $ 9.42 (25.95)% $ 508,204 1.10% 3.02% 91% 11/1/07 to 3/31/08 (2.29) 13.19 (7.62)(4) 801,724 1.12(3) 2.65(3) 21(4) 11/1/06 to 10/31/07 (0.26) 15.48 10.26 919,363 1.12 2.31 54 11/1/05 to 10/31/06 1.19 15.74 13.29 973,751 1.08 2.29 78 11/1/04 to 10/31/05 (0.43) 14.55 3.21 1,000,790 1.05 2.16 58 11/1/03 to 10/31/04 0.67 14.98 6.91 926,383 1.06 1.98 68 CLASS B 4/1/08 to 3/31/09 (3.74) $ 9.39 (26.40)% $ 5,869 1.85% 2.24% 91% 11/1/07 to 3/31/08 (2.28) 13.13 (7.94)(4) 11,992 1.87(3) 1.91(3) 21(4) 11/1/06 to 10/31/07 (0.28) 15.41 9.41 15,013 1.87 1.58 54 11/1/05 to 10/31/06 1.19 15.69 12.43 20,676 1.83 1.54 78 11/1/04 to 10/31/05 (0.43) 14.50 2.47 19,970 1.80 1.39 58 11/1/03 to 10/31/04 0.67 14.93 6.12 16,814 1.80 1.23 68 CLASS C 4/1/08 to 3/31/09 (3.74) $ 9.38 (26.42)% $ 37,350 1.85% 2.26% 91% 11/1/07 to 3/31/08 (2.28) 13.12 (7.94)(4) 60,459 1.87(3) 1.91(3) 21(4) 11/1/06 to 10/31/07 (0.28) 15.40 9.42 71,326 1.87 1.56 54 11/1/05 to 10/31/06 1.19 15.68 12.44 76,874 1.83 1.54 78 4/19/05(5) to 10/31/05 0.02 14.49 0.75(4) 81,111 1.80(3) 1.22(3) 58(4)
(1) Computed using average shares outstanding. (2) Sales charges are not reflected in total return calculation. (3) Annualized. (4) Not Annualized. (5) Inception date. See Notes to Financial Statements 26 and 27 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 1. ORGANIZATION Effective October 1, 2008, the Phoenix Funds became Virtus Mutual Funds, and all of the Funds were renamed to reflect the new Virtus name. On October 20, 2008, the Trusts' names were also updated to reflect the new name. Virtus Equity 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, fourteen funds of the Trust are offered for sale, of which the Virtus Balanced Fund (the "Fund") is reported in this annual report. The Fund's investment objective is outlined in the Fund Summary Page. The Fund offers Class A shares, Class B shares and Class C shares. Class A shares are 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 Fund when redeemed; however, a 1% contingent deferred sales charge ("CDSC") may be imposed on certain redemptions made within one year following purchases on which a finder's fee has been paid. The one-year period begins on the last day of the month preceding the month the purchase was made. Class B shares are sold with a contingent deferred sales charge, which declines from 5% to zero depending on the period of time the shares are held. Class C shares are sold with a 1% contingent deferred sales charge, if applicable, if redeemed within one year of purchase. Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class bears different distribution and/or service expenses and has exclusive voting rights with respect to its distribution plan. Income and other expenses and realized and unrealized gains and losses of the Fund are borne pro rata by the holders of each class of shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount 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. A. SECURITY VALUATION: 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. Debt securities are valued on the basis of broker quotations or valuations provided by a pricing service, which utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities in determining value. Due to excessive volatility in the current market (please see Note 11 on Market Conditions), valuations developed through pricing techniques may materially vary from the actual amounts realized upon sale of the securities. 28 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 As required, some securities and assets may be valued at fair value as determined in good faith by or under the direction of the Trustees. Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (generally, the close of the NYSE) that may impact the value of securities traded in these foreign markets. In these cases, information from an external vendor may be utilized to adjust closing market prices of certain foreign common stocks to reflect their fair value. Because the frequency of significant events is not predictable, fair valuation of certain foreign common stocks may occur on a frequent basis. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market. Investments in underlying money market mutual funds are valued at each fund's closing net asset value. The Fund has adopted the provisions of the Statement of Financial Accounting Standards No. 157 ("SFAS 157"). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, the Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: o Level 1 - quoted prices in active markets for identical securities o Level 2 - prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) o Level 3 - prices determined using significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The following is a summary of the inputs used to value the Fund's net assets as of March 31, 2009. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. ($ REPORTED IN THOUSANDS) INVESTMENTS IN SECURITIES VALUATION INPUTS MARKET VALUE ------------------------------------------ -------------------------- Level 1 - Quoted Prices $352,809 Level 2 - Significant Observable Inputs 215,446 Level 3 - Significant Unobservable Inputs 1,056 -------- TOTAL $569,311 ======== 29 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 The following is a reconciliation of assets of the Fund, for Level 3 investments for which significant unobservable inputs were used to determined fair value: INVESTMENTS IN SECURITIES ($ REPORTED IN THOUSANDS) ------------------------- BALANCE AS OF MARCH 31, 2008 $11,378 Accrued discounts/premiums 9 Realized gain (loss) (2,211) Change in unrealized appreciation (depreciation)(1) 166 Net purchases (sales) (5,882) Transfers in and/or out of Level 3(2) (2,404) ------- BALANCE AS OF MARCH 31, 2009 $ 1,056 ======= (1) DISCLOSED IN THE STATEMENT OF OPERATIONS UNDER NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS. (2) "TRANSFERS IN AND/OR OUT OF LEVEL 3" REPRESENTS THE ENDING VALUE AS OF MARCH 31, 2009, FOR ANY INVESTMENT SECURITY WHERE A CHANGE IN THE PRICING LEVEL OCCURRED FROM THE BEGINNING TO THE END OF THE PERIOD. Level 3 securities have been determined based either on availability of only a single broker source, which may or may not be a principal market maker, or internally fair valued securities without active markets or market participants. B. SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Realized gains and losses are determined on the identified cost basis. Dividend income is recorded using management's estimate of the income included in distributions received from REIT investments. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts. C. INCOME TAXES: The Fund is treated as a separate taxable entity. It is the policy of the Fund to comply with the requirements of Subchapter M of the Internal Revenue 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. The Trust 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 they invest. 30 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has analyzed the Fund's tax positions and has concluded that no provision for income tax is required in the Fund's financial statements. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. D. DISTRIBUTIONS TO SHAREHOLDERS: Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences may include the treatment of non-taxable dividends, market premium and discount, non-deductible expenses, expiring capital loss carryovers, foreign currency gain or loss, gain or loss on futures contracts, partnerships, operating losses and losses deferred due to wash sales. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital paid in on shares of beneficial interest. E. EXPENSES: Expenses incurred by the Trust with respect to more than one fund are allocated in proportion to the net assets of each fund, except where allocation of direct expenses to each fund or an alternative allocation method can be more appropriately made. F. FOREIGN CURRENCY TRANSLATION: Foreign securities and other assets and liabilities are valued using 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 Trust does not isolate that portion of the results of operations arising from changes in exchange rates or from fluctuations which arise due to changes in the market prices of securities. G. LOAN AGREEMENTS: The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. The Fund's investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the lender) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights 31 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 against the borrower on the loan. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due. Currently, the Fund only holds assignment loans. H. SECURITIES LENDING: The Fund may loan securities to qualified brokers through an agreement with State Street Bank and Trust Company (the "Custodian"). Under the terms of the agreement, the 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. Cash collateral is invested in a short-term money market fund. Dividends earned on the collateral and premiums paid by the borrower are recorded as income by the Fund net of fees charged by the Custodian for its services 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 foreclosure on collateral. At March 31, 2009, the Fund did not have any securities on loan. I. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS: The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued and delayed delivery securities on the trade date. The Fund maintains collateral for the securities purchased. Securities purchased on a when-issued or delayed delivery basis begin earning interest on the settlement date. 3. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS ($ REPORTED IN THOUSANDS EXCEPT AS NOTED) At end of business December 31, 2008, Virtus Investment Partners, Inc. ("Virtus") spun off from The Phoenix Companies, Inc. ("PNX"), into an independent publicly traded company which through its affiliates provides asset management and related services to individuals and institutions. Virtus Investment Advisers, Inc. ("VIA," the "Adviser," formerly known as Phoenix Investment Counsel, Inc.) and VP Distributors, Inc. ("VP Distributors," formerly known as Phoenix Equity Planning Corporation) are indirect wholly-owned subsidiaries of Virtus. Due to the spin-off, the asset management subsidiaries have changed their names to reflect the Virtus brand. As compensation for its services to the Trust, the Adviser is entitled to a fee based upon the following annual rates as a percentage of the average daily net assets of the Fund: 1ST $1 $1+ BILLION - $2+ BILLION $2 BILLION BILLION ------- ---------- ------- 0.55% 0.50% 0.45% The Adviser manages the Fund's investment program and general operations of the Fund, including oversight of the Fund's subadviser, Goodwin Capital Advisers, Inc. ("Goodwin"). Goodwin is the subadviser of the Fund's Fixed Income Portfolio. The Adviser manages the Fund's Equity Portfolio. 32 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 As distributor of the Fund's shares, VP Distributors has advised the Fund that it retained net selling commissions and deferred sales charges for the fiscal year (the "period") ended March 31, 2009, as follows: CLASS A CLASS B CLASS C NET SELLING DEFERRED DEFERRED COMMISSIONS SALES CHARGES SALES CHARGES ----------- ------------- ------------- $33 $11 $ --* * Amount is less than $500 (not reported in thousands). The Fund pays VP Distributors, Inc. distribution and/or service fees at the following annual rates as a percentage of the average daily net assets of each respective class. CLASS A CLASS B CLASS C ------- ------- ------- 0.25% 1.00% 1.00% 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 net asset values per share at the time of the exchange. On exchanges with share classes that carry a contingent deferred sales charge, the CDSC schedule of the original shares purchased continues to apply. VP Distributors, Inc. serves as the Administrator to the Trust. For its services, which includes financial agent services, VP Distributors, Inc. receives an administration fee at an annual rate of 0.09% of the first $5 billion, 0.08% on the next $10 billion, and 0.07% over $15 billion of the average net assets across all non-money market Virtus Mutual Funds and certain other funds. For the period ended March 31, 2009, the Fund incurred administration fees totaling $609. VP Distributors, Inc. also serves as the Trust's transfer agent. For the period ended March 31, 2009, transfer agent fees were $1,117 as reported in the Statement of Operations. 4. PURCHASES AND SALES OF SECURITIES ($ REPORTED IN THOUSANDS) Purchases and sales of investment securities (excluding U.S. Government and agency securities and short-term securities) during the period ended March 31, 2009, were as follows: PURCHASES SALES --------- -------- $593,638 $639,256 Purchases or sales of long-term U.S. Government and agency securities during the period ended March 31, 2009 were as follows: PURCHASES SALES --------- ------- $54,883 $89,046 5. CREDIT RISK AND ASSET CONCENTRATIONS 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 33 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 disruptive effects on the market prices of these investments and the income they generate, as well as the Fund's ability to repatriate such amounts. High-yield/high-risk securities typically entail greater price volatility and/or principal and interest rate risk. There is a greater chance that an issuer will not be able to make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield securities may be complex, and as a result, it may be more difficult for the Adviser and/or Goodwin to accurately predict risk. The Fund may invest a high percentage of its assets in specific sectors of the market in its pursuit of a greater investment return. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors. 6. INDEMNIFICATIONS Under the Fund's organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, the Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these arrangements. 7. REGULATORY EXAMS Federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Virtus (and, prior to the spin-off described in Note 3, PNX) and its subsidiaries (collectively "the Company") with securities and other laws and regulations affecting their registered products. There are currently no such matters which the Company believes will be material to these financial statements. 8. FEDERAL INCOME TAX INFORMATION ($ REPORTED IN THOUSANDS) At March 31, 2009, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows: NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) -------- ------------ ------------ -------------- $617,788 $13,917 $(62,394) $(48,477) The Fund has capital loss carryovers which may be used to offset future capital gains, as follows: EXPIRATION YEAR ------------------------------------------ 2010 2017 TOTAL ---- ------ ------- $739 $9,922 $10,661 The Fund may not realize the benefit of these losses to the extent the Fund does not realize gains on investments prior to the expiration of the capital loss carryovers. The Fund's amounts include losses acquired in connection with prior and/or current year mergers. Utilization of these capital loss carryovers are subject to annual limitations. 34 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 The Fund had $1,849 of capital loss carryover which expired in 2009. Under current tax law, foreign currency and capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following tax year. For the year ended March 31, 2009, the Fund deferred post October losses as follows: CAPITAL CURRENCY DEFERRED DEFERRED -------- -------- $136,345 $156 The components of distributable earnings on a tax basis (excluding unrealized appreciation (depreciation) which is disclosed in the first table above) consists of undistributed ordinary income of $541 and undistributed long-term capital gains of $0. The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions reported in the Statement of Changes in Net Assets, if any, are reported as ordinary income for federal tax purposes. 9. RECLASSIFICATION OF CAPITAL ACCOUNTS ($ REPORTED IN THOUSANDS) For financial reporting purposes, book basis capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Permanent reclassifications can arise from differing treatment of certain income and gain transactions, nondeductible current year net operating losses, expiring capital loss carryovers and investments in passive foreign investment companies. The reclassifications have no impact on the net assets or net asset value of the Fund. As of March 31, 2009, the Fund recorded reclassifications to increase (decrease) the accounts as listed below: CAPITAL PAID IN ON SHARES OF UNDISTRIBUTED ACCUMULATED BENEFICIAL NET INVESTMENT NET REALIZED INTEREST INCOME (LOSS) GAIN (LOSS) ------------ -------------- ------------ $(1,849) $256 $1,593 10. RECENTLY ISSUED ACCOUNTING STANDARDS In April 2009, FASB issued FASB Staff Position No. 157-4, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY ("FSP 157-4"). FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 (see Note 2A), when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 requires entities to describe the inputs used in valuation techniques used to measure fair value and changes in inputs over the period. FSP 157-4 expands the three-level hierarchy disclosure and the level three-roll forward disclosure for each major security type as described in paragraph 19 of FAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Management is currently evaluating the impact the implementation of FSP 157-4 will have on the Funds' financial statement disclosures, if any. 35 VIRTUS BALANCED FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why a fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect a fund's results of operations and financial position. Management is currently evaluating the impact of SFAS 161 on financial statement disclosures, if any. 11. MARKET CONDITIONS Events in the financial sector have resulted in an unusually high degree of volatility in the financial markets and the net asset value of many mutual funds, including the Funds. Such events include, but are not limited to, the seizure of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation by U.S. banking regulators, the bankruptcy filing of Lehman Brothers and sale of Merrill Lynch to Bank of America, and the government bailout of AIG. These companies represent financial institutions with which the Fund may conduct business and/or whose securities are or may be held within the Fund. The potential investment of the Fund's investments in these issuers, and the financial sector in general, as reflected in the Fund's Schedule of Investments, exposes investors to the negative (or positive) performance resulting from these and other events. 12. SUBSEQUENT EVENT The Board of Trustees has approved and recommended for approval by shareholders at a Special Meeting of Shareholders to be held on June 4, 2009, a proposal to replace Goodwin with SCM Advisors LLC ("SCM") as the Fund's subadviser responsible for the management of the Fund's fixed income portfolio. SCM is an indirect wholly-owned subsidiary of Virtus. The Adviser will pay the subadviser fees not the Fund. A proxy statement describing the proposal was filed with the Securities and Exchange Commission and mailed to the shareholders of the Fund on April 16, 2009. 36 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [GRAPHIC OMITTED] PRICEWATERHOUSECOOPERS To the Board of Trustees of Virtus Equity Trust and Shareholders of Virtus Balanced Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Virtus Balanced Fund, (formerly Phoenix Balanced Fund, a series of Virtus Equity Trust (formerly Phoenix Equity Trust), hereafter referred to as the "Fund") at March 31, 2009, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Philadelphia, PA May 22, 2009 37 VIRTUS BALANCED FUND TAX INFORMATION NOTICE (UNAUDITED) MARCH 31, 2009 -------------------------------------------------------------------------------- For the fiscal year ended March 31, 2009, the Fund makes the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends ("QDI") to qualify for the lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by the Fund which qualifies for the dividends received deduction ("DRD") for corporate shareholders. The actual percentage of QDI and DRD for the calendar year will be designated in year-end tax statements. The Fund designates the amounts below, or if subsequently different, as long-term capital gains dividends ("LTCG") ($ reported in Thousands). QDI DRD LTCG ---------- ---------- ------------ 47% 46% $ -- -------------------------------------------------------------------------------- 38 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) The Board of Trustees of the Trust, along with the Boards of Trustees of the other trusts in the Virtus Mutual Funds family of funds (collectively, the "Board"), are responsible for determining whether to approve the establishment and continuation of each investment advisory and sub-advisory agreement (each, an "Agreement") applicable to the Virtus Mutual Funds (collectively, the "Funds"). At meetings held on November 18 - 20, 2008, the Board, including a majority of the independent Trustees, considered and approved the continuation of each Agreement, as further discussed below. In approving each Agreement, the Board determined that the continued retention of the applicable adviser or subadviser was in the best interests of the Funds and their shareholders. The Trustees considered each Fund separately, though they also collectively took into account those interests that all the Funds had in common. In reaching their decisions, the Board considered information furnished throughout the year at regular Board meetings as well as information prepared specifically in connection with the annual review process. During the review process, the Board received assistance and advice from, and met separately with, independent legal counsel. The Board's determination contemplated a number of factors that the Trustees believed, in light of the legal advice furnished to them as well as their own business judgment, to be relevant. Some of the factors that the Board considered are described below, although the Trustees did not identify any particular information or factor as controlling but instead considered the Agreements in the totality of the circumstances. Each individual Trustee may have evaluated the information presented differently, giving different weights to different factors. NATURE, EXTENT AND QUALITY OF SERVICES. The majority of the Funds(1) 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, Virtus Investment Advisers, Inc. ("VIA") is responsible 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 Agreement with VIA, therefore, the Trustees considered VIA's process for supervising and managing the Funds' subadvisers, including (a) VIA's ability to select and monitor the subadvisers; (b) VIA's ability to provide the services necessary to monitor the subadvisers' compliance with the Funds' respective investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VIA'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: (d) the experience, capability and integrity of VIA's management and other personnel; (e) the financial position of VIA; (f) the quality of VIA's own regulatory and legal compliance policies, procedures and systems; (g) the nature, extent and quality of administrative and other services provided by VIA to the Funds; and (h) VIA's supervision of the Funds' other service providers. Finally, the Board also noted the extent of benefits ---------- (1) DURING THE PERIOD BEING REPORTED, THE ONLY FUNDS THAT DID NOT EMPLOY A MANAGER OF MANAGERS STRUCTURE WERE VIRTUS GROWTH & INCOME FUND, WHICH IS A SERIES OF VIRTUS EQUITY TRUST; AND VIRTUS WEALTH ACCUMULATOR FUND, VIRTUS WEALTH BUILDER FUND, VIRTUS DIVERSIFIER FUND AND VIRTUS ALTERNATIVES DIVERSIFIER FUND, WHICH ARE SERIES OF VIRTUS OPPORTUNITIES TRUST. VIA ACTED AS THE ADVISER FOR THESE FUNDS WITHOUT EMPLOYING A SUBADVISER, AND THE BOARD CONSIDERED THE VIA AGREEMENT WITH RESPECT TO THESE FUNDS IN THAT CONTEXT. 39 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) that are provided to Fund shareholders as a result of being part of the family of Virtus Mutual Funds, including the right to exchange investments between the same class of Funds without a sales charge, the ability to reinvest Fund dividends into other Funds and the right to combine holdings in other Funds to obtain a reduced sales charge. With respect to the sub-advisory 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. In considering the renewal of the sub-advisory Agreements, therefore, the Board considered each subadviser's investment management process, including (a) the experience, capability and integrity of the subadviser's management and other personnel committed by the subadviser to its respective Fund(s); (b) the financial position of the subadviser; (c) the quality and commitment of the subadviser's regulatory and legal compliance policies, procedures and systems; and (d) the subadviser's brokerage and trading practices. After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services provided by VIA and each subadviser were reasonable and beneficial to the Funds and their shareholders. INVESTMENT PERFORMANCE. The Board placed significant emphasis on its consideration of the investment performance of the Funds, in view of its importance to shareholders, and evaluated Fund performance in the context of the special considerations that a manager-of-managers structure requires. The Board also considered that VIA continued to be proactive in seeking to replace and/or add subadvisers as necessary, with a view toward improving Fund performance over the long term. While consideration was given to performance reports and discussions at Board meetings throughout the year, particular attention in assessing such performance was given to a report (the "Lipper Report") for the Funds prepared by Lipper Inc. ("Lipper") and furnished specifically for the contract renewal process. (Lipper is an independent provider of investment company data retained by the Funds for this purpose.) The Lipper Report presented each Fund's short-term and long-term performance relative to a peer group of other mutual funds and relevant benchmarks, as selected by Lipper. The Board considered the composition of each peer group, selection criteria and the appropriateness of the benchmark used for each Fund. The Board also assessed each Fund's performance in the context of its review of the fees and expenses of each Fund as well as VIA's profitability. The Board noted that while many of the Funds had generally performed in line with their respective benchmarks and peer groups during the periods measured, some of the Funds had underperformed in comparison with their respective benchmarks and/or peer groups. The Board noted that certain of the Funds' underperformance was slight, and that some of the Funds underperforming their benchmarks and/or peer groups for a given period had outperformed such benchmarks and/or peer groups during other periods. Where significant, the Board extensively considered the performance of the underperforming Funds and the reasons for the performance issues. The Board discussed the possible reasons for the underperformance with VIA, and spoke with representatives from VIA regarding plans to monitor and address performance issues during the coming year. 40 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) The Board ultimately determined, within the context of all of its considerations in connection with the Agreements, that the Funds' overall investment performance was reasonable, and concluded that VIA's and each subadviser's performance record and process in managing the Funds merited approval of the continuation of the Agreements. However, the Board noted that certain Funds' performance would continue to be closely monitored and it expected that if performance over a longer period of time did not improve the adviser would recommend that the subadviser be replaced in a timely manner. PROFITABILITY. The Board also considered the level of profits realized by VIA and its affiliates in connection with the operation of the Funds. In this regard, the Board reviewed the analysis presented regarding the overall profitability of VIA for its management of the Virtus Mutual Funds, as well as its profits and those of its affiliates for managing and providing other services to each Fund. In addition to the fees paid to VIA and its affiliates, the Trustees considered any other benefits derived by VIA or its affiliates from their relationship with the Funds. Specific attention was paid to the methodology used to allocate costs to each Fund, in recognition of the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this regard, the Board noted that the allocations appeared reasonable, and concluded that the profitability to VIA from each Fund was reasonable in light of the quality of all services rendered to the Funds by VIA and its affiliates. The Board did not separately review profitability information for each subadviser, noting that the sub-advisory fees are paid by VIA rather than the Funds, so that Fund shareholders are not directly impacted by those fees. MANAGEMENT FEES AND TOTAL EXPENSES. In evaluating the management fees and total expenses of each Fund, the Board reviewed information provided by VIA and comparisons to other funds in each Fund's peer group as presented in the Lipper Report. The Board noted that certain Funds had higher gross expenses when expressed as a percentage of net assets than those of such Funds' larger peers, which the Trustees considered in the context of these Funds' expectations for future growth. Finally, the Board also noted that several of the Funds had fee waivers and/or expense caps in place to limit the total expenses incurred by the Funds and their shareholders. Based upon the information presented by VIA and Lipper, the Trustees then determined, in the exercise of their business judgment, that the management fees charged by VIA and the total expenses of the Funds were reasonable, both on an absolute basis and in comparison with the fees and expenses of other funds in each Fund's peer group and the industry at large. The Board did not receive comparative fee information relating specifically to sub-advisory fees, in light of the fact that the sub-advisory fees are paid by VIA and not by the Funds, so that Fund shareholders are not directly impacted by those fees. 41 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) ECONOMIES OF SCALE. The Board noted that the management fees for several of the Funds included breakpoints based on assets under management, and that fee waivers and/or expense caps were also in place for several of the Funds. The Board determined that VIA and the Funds likely would achieve certain economies of scale, particularly in relationship to certain fixed costs, and that shareholders of the Funds would have an opportunity to benefit from these economies of scale. In considering the sub-advisory Agreements, the Board also considered the existence of any economies of scale and whether they would be passed along to the Funds' shareholders, but noted that any such economies would likely be generated at the Fund level rather than at the subadviser level. 42 FUND MANAGEMENT TABLES (UNAUDITED) Information pertaining to the trustees and officers of the Trust as of March 31, 2009 is set forth below. The statement of additional information (SAI) includes additional information about the trustees and is available without charge, upon request, by calling (800) 243-4361. The address of each individual, unless otherwise noted, is 100 Pearl Street, Hartford, CT 06103-4506. There is no stated term of office for trustees of the Trust.
INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ Leroy Keith, Jr. Managing Director, Almanac Capital Management (commodities business) (2007-present). Partner, YOB: 1939 Stonington Partners, Inc. (private equity firm) (2001-2007). Director/Trustee, Evergreen Funds (88 Elected: 1993 portfolios). 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Philip R. McLoughlin Partner, Cross Pond Partners, LLC (2006-Present). Director, World Trust Fund. Chairman and Trustee, The YOB: 1946 Phoenix Edge Series Fund (2003-present). Director, DTF Tax-Free Income Fund, Inc., Duff & Phelps Elected: 1993 Utility and Corporate Bond Trust, Inc. and DNP Select Income Fund Inc. Managing Director, SeaCap, Asset 51 Funds Management Fund I LP. ------------------------------------------------------------------------------------------------------------------------------------ Geraldine M. McNamara Retired. Managing Director, U.S. Trust Company of New York (private bank) (1982-2006). YOB: 1951 Elected: 2001 51 Funds ------------------------------------------------------------------------------------------------------------------------------------ James M. Oates Managing Director, Wydown Group (consulting firm) (1994-present). Chairman, Hudson Castle Group, Inc. YOB: 1946 (formerly IBEX Capital Markets, Inc.) (financial services) (1997-2006). Director, Stifel Financial. Elected: 1993 Chairman and Trustee, John Hancock Trust (93 portfolios) and John Hancock Funds II (74 portfolios). 49 Funds Non-Executive Chairman, Hudson Castle Group, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Segerson Managing Director, Northway Management Company (1998-present). YOB: 1946 Elected: 1998 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Ferdinand L.J. Verdonck Retired. Director, Galapagos N.V. (biotechnology). Mr. Verdonck is also a director of several non-U.S. YOB: 1942 companies. Elected: 2004 49 Funds ------------------------------------------------------------------------------------------------------------------------------------
43 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED) INTERESTED TRUSTEE The individual listed below is an "interested person" of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.
INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ George R. Aylward(1) Director, President and Chief Executive Officer (2008-present), Director and President (2006-2008), YOB: 1964 Chief Operating Officer (2004-2006), Vice President, Finance (2001-2002), Virtus Investment Partners, Elected: 2006 Inc. and/or certain of its subsidiaries. Senior Executive Vice President and President, Asset 51 Funds Management (2007-2008), Senior Vice President and Chief Operating Officer, Asset Management (2004-2007), Vice President and Chief of Staff (2001-2004), The Phoenix Companies, Inc. Various senior officer and directorship positions with Phoenix affiliates (2005-2008). President (2006-present), Executive Vice President (2004-2006), the Virtus Mutual Funds Family. Chairman, President and Chief Executive Officer, The Zweig Fund Inc. and The Zweig Total Return Fund Inc. (2006-present). ------------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Aylward is an "interested person," as defined in the Investment Company Act of 1940, by reason of his relationship with Virtus Investment Partners, Inc. and/or its affiliates. 44 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Nancy G. Curtiss Senior Vice President Executive Vice President, Head of Operations (since 2009), Senior Vice YOB: 1952 since 2006. President, Operations (2008-2009), Vice President, Head of Asset Management Operations (2007-2008), Vice President (2003-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Assistant Treasurer (2001-2009), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Ms. Curtiss is also Treasurer of various other investment companies within the Virtus Mutual Funds Complex (1994-present). ------------------------------------------------------------------------------------------------------------------------------------ Francis G. Waltman Senior Vice President Executive Vice President, Head of Product Management (since 2009), YOB: 1962 since 2008. Senior Vice President, Asset Management Product Development (2008-2009), Senior Vice President, Asset Management Product Development (2005-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Director (since 2008), Director and President (2006-2007), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Director and Senior Vice President (since 2008), Senior Vice President (2006-2007), Virtus Investment Advisers, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Marc Baltuch Vice President and Chief Compliance Officer, Zweig-DiMenna Associates LLC (1989-present). c/o Zweig-DiMenna Chief Compliance Vice President, The Zweig Total Return Fund, Inc. (2004-present). Vice Associates, LLC Officer since 2004. President, The Zweig Fund, Inc. (2004-present). President and Director 900 Third Avenue of Watermark Securities, Inc. (1991-present). Assistant Secretary, New York, NY 10022 Gotham Advisors Inc. (1990-2005). YOB: 1945 ------------------------------------------------------------------------------------------------------------------------------------ W. Patrick Bradley Chief Financial Officer Senior Vice President, Fund Administration (since 2009), Vice YOB: 1972 and Treasurer President, Fund Administration (2007-2009), Second Vice President, since 2006. Fund Control & Tax (2004-2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer (2006-present), Assistant Treasurer (2004-2006), The Phoenix Edge Series Fund. Chief Financial Officer and Treasurer (2005-present), Assistant Treasurer (2004-2006), certain funds within the Virtus Mutual Funds Family. ------------------------------------------------------------------------------------------------------------------------------------
45 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Kevin J. Carr Vice President, Senior Vice President (since 2009), Counsel and Secretary YOB: 1954 Chief Legal Officer, (2008-present) and Vice President (2008-2009), Virtus Investment Counsel and Secretary Partners, Inc. and/or certain of its subsidiaries. Vice President and since 2005. Counsel, Phoenix Life Insurance Company (2005-2008). Compliance Officer of Investments and Counsel, Travelers Life & Annuity Company (January 2005-May 2005). Assistant General Counsel and certain other positions, The Hartford Financial Services Group (1995-2005). ------------------------------------------------------------------------------------------------------------------------------------
46 VIRTUS EQUITY TRUST 101 Munson Street Greenfield, MA 01301-9668 TRUSTEES George R. Aylward Leroy Keith, Jr. Philip R. McLoughlin, Chairman Geraldine M. McNamara James M. Oates Richard E. Segerson Ferdinand L.J. Verdonck OFFICERS George R. Aylward, President Nancy G. Curtiss, Senior Vice President Francis G. Waltman, Senior Vice President Marc Baltuch, Vice President and Chief Compliance Officer W. Patrick Bradley, Chief Financial Officer and Treasurer Kevin J. Carr, Vice President, Chief Legal Officer, Counsel and Secretary INVESTMENT ADVISER Virtus Investment Advisers, Inc. 100 Pearl Street Hartford, CT 06103-4506 PRINCIPAL UNDERWRITER VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 TRANSFER AGENT VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 CUSTODIAN State Street Bank and Trust Company P.O. Box 5501 Boston, MA 02206-5501 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 2001 Market Street Philadelphia, PA 19103-7042 HOW TO CONTACT US Mutual Fund Services 1-800-243-1574 Advisor Consulting Group 1-800-243-4361 Telephone Orders 1-800-367-5877 Text Telephone 1-800-243-1926 Web site VIRTUS.COM -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- THIS PAGE INTENTIONALLY BLANK. ------------- PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT 1793 ------------- [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS c/o State Street Bank and Trust Company P.O. Box 8301 Boston, MA 02266-8301 For more information about Virtus mutual funds, please call your financial representative, contact us at 1-800-243-1574 or VIRTUS.COM. 8013 4-09 ANNUAL REPORT [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS Virtus Capital Growth Fund -------------------------------------------------------------------------------- WOULDN'T YOU RATHER HAVE THIS DOCUMENT E-MAILED TO YOU? TRUST NAME: ELIGIBLE SHAREHOLDERS CAN SIGN VIRTUS EQUITY TRUST March 31, 2009 UP FOR E-DELIVERY AT VIRTUS.COM NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE TABLE OF CONTENTS VIRTUS CAPITAL GROWTH FUND* ("Capital Growth Fund") Message to Shareholders................................................ 1 Glossary............................................................... 3 Disclosure of Fund Expenses............................................ 4 Fund Summary........................................................... 6 Schedule of Investments................................................ 8 Statement of Assets and Liabilities.................................... 10 Statement of Operations................................................ 11 Statement of Changes in Net Assets..................................... 12 Financial Highlights................................................... 14 Notes to Financial Statements.......................................... 16 Report of Independent Registered Public Accounting Firm................ 24 Consideration of Advisory and Subadvisory Agreements by the Board of Trustees............................................. 26 Fund Management Tables................................................. 30 * Please see Notes 1 and 3 in the Notes to Financial Statements for more information on the name change. -------------------------------------------------------------------------------- PROXY VOTING PROCEDURES (FORM N-PX) The adviser and subadviser vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Trust's Board of Trustees. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, 2008, free of charge, by calling toll-free 1-800-243-1574. This information is also available through the Securities and Exchange Commission's website at http://www.sec.gov. FORM N-Q INFORMATION The Trust files a complete schedule of portfolio holdings for the Fund with the Securities and Exchange Commission (the "SEC") for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC's website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330. -------------------------------------------------------------------------------- This report is not authorized for distribution to prospective investors in the Virtus Capital Growth Fund unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, the Fund's record and other pertinent information. MESSAGE TO SHAREHOLDERS Dear Fellow Shareholders of Virtus Mutual Funds: [GRAPHIC OMITTED] After the unprecedented economic events of 2008, investors were ready to greet the new year with great expectations. Instead, we were sorely disappointed. The first quarter of 2009 brought more dismal economic news as the worst financial crisis since the Great Depression continued, seemingly unabated. Consumer confidence and business sentiment spiraled downward on poor corporate earnings and woeful economic data. Major stock market indices posted their worst January and February returns on record, ultimately leading to a sixth straight down quarter. The new administration in Washington, D.C. responded with an alphabet-soup of financial recovery programs - TARP (Troubled Asset Relief Program), TALF (Term Asset-Backed Securities Loan Facility) and CAP (Capital Assistance Program) - conducted stress tests of troubled banks and took extreme measures in an attempt to rescue two of the "Big Three" automakers. But by March 9th, the Dow Jones Industrial Average (SM) was down 25.4 percent from the start of the year and the S&P 500(R) Index was off 27.4 percent. Then a number of promising signs appeared. Credit markets exhibited tentative evidence of stabilizing and the manufacturing sector reported modest increases in new orders. Retail sales gained slightly, and for the first time in two years the housing markets in some regions of the country indicated they may have hit bottom. There was a bounce in the financial markets, and March ended with the best monthly stock gains in more than six years. Whether this is the start of a significant "V"-shaped recovery or a temporary upswing of a "W" recovery remains to be seen. The second quarter began with a sprinkling of encouraging corporate earnings, and unemployment - while still a significant drag on the economy - shows signs of slowing. Questions remain on the effectiveness of the government's economic interventions, as well as the long-term impact of increasing budget deficits, yet we entered the second quarter with a glimmer of hope. The uncertainties of the economy are another reminder that investors should rely on the discipline and focus of professional investment managers and financial advisors when making decisions about personal investments. We encourage you to meet with your financial advisor and periodically review your portfolio to ensure it reflects your current investment objectives, your tolerance for risk, and your long-term financial goals. At Virtus, our commitments to quality investment solutions and superior customer service remain unchanged. We offer a wide range of equity, fixed income, and money market funds as well as alternative strategies that you may wish to consider 1 as you review your investments. We recognize the economy and financial markets still face substantial challenges, but our investment professionals remain committed to identifying the right options for your long-term investment needs. Your confidence in Virtus Mutual Funds is deeply appreciated. Sincerely, /s/ George R. Aylward George R. Aylward President, Virtus Mutual Funds MAY 1, 2009 WHENEVER YOU HAVE QUESTIONS ABOUT YOUR ACCOUNT OR REQUIRE ADDITIONAL INFORMATION, PLEASE VISIT US AT WWW.VIRTUS.COM OR CALL OUR SHAREOWNER SERVICES GROUP, TOLL FREE, AT 800-243-1574. PERFORMANCE DATA QUOTED REPRESENTS PAST RESULTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN ABOVE. 2 GLOSSARY ADR (AMERICAN DEPOSITARY RECEIPT) Represent shares of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a bank or trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares. CAP (CAPITAL ASSISTANCE PROGRAM) An element of the financial stability plan launched by the U.S. Department of Treasury to regain confidence in the financial industry. In this program, the U.S. Treasury makes capital available for financial institutions to borrow in order to enable them to continue to serve the public. RUSSELL 1000(R) GROWTH INDEX The Russell 1000(R) Growth Index is a market capitalization-weighted index of growth-oriented stocks of the 1,000 largest companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. S&P 500(R) INDEX The S&P 500(R) 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. SPONSORED ADR (AMERICAN DEPOSITARY RECEIPT) An ADR which is issued with the cooperation of the company whose stock will underlie the ADR. These shares carry all the rights of the common share such as voting rights. ADRs must be sponsored to be able to trade on the NYSE. TALF (TERM ASSET-BACKED SECURITIES LOAN FACILITY) The TALF is intended to assist the credit markets in accommodating the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally. TARP (TROUBLED ASSET RELIEF PROGRAM) A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The fund was created by enacting the Emergency Economic Stabilization Act of 2008. THE INDEXES ARE UNMANAGED AND NOT AVAILABLE FOR DIRECT INVESTMENT; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT THE EXPENSES ASSOCIATED WITH ACTIVE MANAGEMENT OF AN ACTUAL PORTFOLIO. 3 VIRTUS CAPITAL GROWTH FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 We believe it is important for you to understand the impact of costs on your investments. All mutual funds have operating expenses. As a shareholder of the Virtus Capital Growth Fund (the "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 B and Class C shares; and (2) ongoing costs, including investment advisory fees; distribution and service fees; and other expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the 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. The following Expense Table illustrates the Fund's costs in two ways. ACTUAL EXPENSES The first section of the accompanying table provides information about actual account values and actual expenses. You may use the information in this section, 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 first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the accompanying table provides information about hypothetical account values and hypothetical expenses based on the 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 the other funds. Please note that the expenses shown in the accompanying table 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 second section of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if those 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 timing of any purchases or redemptions. 4 VIRTUS CAPITAL GROWTH FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) (CONTINUED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 EXPENSE TABLE -------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During October 1, 2008 March 31, 2009 Ratio Period* -------------------------------------------------------------------------------- ACTUAL Class A $1,000.00 $ 763.60 1.50% $ 6.60 Class B 1,000.00 760.80 2.25 9.88 Class C 1,000.00 761.00 2.25 9.88 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,017.36 1.50 7.57 Class B 1,000.00 1,013.57 2.25 11.36 Class C 1,000.00 1,013.57 2.25 11.36 * Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days (182) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the period. The Fund may invest in other funds, and the annualized expense ratios noted above do not reflect fees and expenses associated with the underlying funds. If such fees and expenses were included, the expenses would have been higher. You can find more information about the Fund's expenses in the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to the prospectus. 5 TICKER SYMBOLS: CAPITAL GROWTH FUND A Share: PHGRX B Share: PGTBX C Share: PHCAX o Capital Growth Fund (the "Fund") is diversified and has an investment objective of long-term capital appreciation. THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE. o For the fiscal year ended March 31, 2009, the Fund's Class A shares returned -34.53%, Class B shares returned -35.05% and Class C shares returned -35.02%. For the same period, the S&P 500(R) Index returned -38.09% and the Russell 1000(R) Growth Index returned -34.28%. ALL PERFORMANCE FIGURES ASSUME REINVESTMENT OF DISTRIBUTIONS AND EXCLUDE THE EFFECT OF SALES CHARGES. 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. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO YOUR SHARES, WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. HOW DID THE EQUITY MARKETS PERFORM DURING THE FUND'S FISCAL YEAR? o Equity markets performed poorly during this fiscal year, mirroring economic conditions and expectations. Sector rotation radically impacted returns within the Energy and Materials Sectors. o During the period, technology holdings, in general, performed better than financial holdings. The Russell 1000 Growth(R) Index, which is the benchmark for this fund, has a relative overweight of technology holdings and relative underweight of financial holdings. o New fears about the survival of the nation's largest banks produced an extremely challenging month of February. The markets did finally begin to rally with better than expected news out of some banks, including Citigroup. o In the near term, quarterly earnings reports will be an important signal for the markets as companies reveal their performance and outlook for the remainder of the year. In addition, the markets will continue to assess the government and Federal Reserve's plans to combat the financial crisis facing the nation and key economic indicators will continue to be closely scrutinized. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR? o During this stressful economic period, the Fund modestly underperformed the Russell 1000 Growth(R) Index. Overall sector allocation was positive, benefiting from the Fund's relative overweight in the Health Care sector and relative underweight in the Industrials sector. However, overall stock selection detracted, led by companies within the Energy sector. THE PRECEDING INFORMATION IS THE OPINION OF THE PORTFOLIO MANAGEMENT ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. ANY SUCH OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET CONDITIONS AND SHOULD NOT BE RELIED ON AS INVESTMENT ADVICE. BECAUSE THE FUND IS HEAVILY WEIGHTED IN A SINGLE SECTOR, IT WILL BE IMPACTED BY THAT SECTOR'S PERFORMANCE MORE THAN A FUND WITH BROADER SECTOR DIVERSIFICATION. INVESTING IN THE SECURITIES OF SMALL AND MID-SIZED COMPANIES INVOLVES GREATER RISKS AND PRICE VOLATILITY THAN INVESTING IN LARGER, MORE ESTABLISHED COMPANIES. SECTOR WEIGHTINGS as of 3/31/09* ---------------------------------------------- Information Technology 31% ---------------------------------------------- Health Care 19 ---------------------------------------------- Consumer Staples 16 ---------------------------------------------- Consumer Discretionary 12 ---------------------------------------------- Industrials 7 ---------------------------------------------- Energy 5 ---------------------------------------------- Materials 3 ---------------------------------------------- Other (includes short-term investments) 7 ---------------------------------------------- * % of total investments as of March 31, 2009. For information regarding the indexes and certain investment terms, see the glossary on page 3. 6 AVERAGE ANNUAL TOTAL RETURNS(1) for periods ended 3/31/09 --------------------------------------------------------------------------------
Inception 1 5 10 to Inception Year Years Years 3/31/09 Date ----------------------------------------------------------------------------------------------- CLASS A SHARES AT NAV(2) -34.53% -7.60% -8.18% -- -- ----------------------------------------------------------------------------------------------- CLASS A SHARES AT POP(3),(4) -38.30 -8.69 -8.72 -- -- ----------------------------------------------------------------------------------------------- CLASS B SHARES AT NAV(2) -35.05 -8.30 -8.88 -- -- ----------------------------------------------------------------------------------------------- CLASS B SHARES WITH CDSC(4) -37.65 -8.30 -8.88 -- -- ----------------------------------------------------------------------------------------------- CLASS C SHARES AT NAV(2) -35.02 -- -- -19.19% 11/21/06 ----------------------------------------------------------------------------------------------- CLASS C SHARES WITH CDSC(4) -35.02 -- -- -19.19 11/21/06 ----------------------------------------------------------------------------------------------- S&P 500(R) INDEX -38.09 -4.77 -3.00 -19.51 11/21/06 ----------------------------------------------------------------------------------------------- RUSSELL 1000(R) GROWTH INDEX -34.28 -4.38 -5.26 -16.18 11/21/06 ----------------------------------------------------------------------------------------------- FUND EXPENSE RATIOS(5): A SHARES: 1.34%; B SHARES: 2.09%; C SHARES: 2.09%. -----------------------------------------------------------------------------------------------
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) Total returns are historical and include changes in share price and the reinvestment of both dividends and capital gain distributions. (2) "NAV" (Net Asset Value) total returns do not include the effect of any sales charge. (3) "POP" (Public Offering Price) total returns include the effect of the maximum front-end 5.75% sales charge. (4) CDSC (contingent deferred sales charge) is applied to redemptions of certain classes of shares that do not have a sales charge applied at the time of purchase. CDSC charges for B shares decline from 5% to 0% over a five-year period. CDSC charges for certain redemptions of Class A shares and all redemptions of Class C shares are 1% in the first year and 0% thereafter. (5) The expense ratios of the Fund are set forth according to the prospectus for the Fund effective 6/6/08 and may differ from the expense ratios disclosed in the Financial Highlight tables in this report. GROWTH OF $10,000 for periods ended 3/31 -------------------------------------------------------------------------------- This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A and Class B shares including any applicable sales charges or fees. The performance of the other share class will be greater or less than that shown based on differences in inception dates, fees and sales charges. Performance assumes reinvestment of dividends and capital gain distributions. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Russell 1000(R) Share Share Growth Class A Class B S&P 500(R) Index -------------- -------------- ---------- ------- 3/31/99 $ 9,425 $10,000 $10,000 $10,000 3/31/00 12,415 13,073 11,824 13,412 3/31/01 6,880 7,190 9,240 7,683 3/31/02 5,961 6,185 9,263 7,529 3/31/03 4,562 4,694 6,970 5,514 3/31/04 5,961 6,087 9,418 7,289 3/31/05 5,818 5,899 10,046 7,373 3/31/06 6,409 6,449 11,225 8,343 3/31/07 6,470 6,462 12,553 8,931 3/31/08 6,131 6,078 11,916 8,864 3/31/09 4,014 3,948 7,377 5,825 For information regarding the indexes and certain investment terms, see the glossary on page 3. 7 VIRTUS CAPITAL GROWTH FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands) SHARES VALUE ------- -------- COMMON STOCKS+--97.6% CONSUMER DISCRETIONARY--11.6% Apollo Group, Inc.(2) 21,100 $ 1,653 Big Lots, Inc.(2) 166,075 3,451 Family Dollar Stores, Inc. 56,800 1,896 ITT Educational Services, Inc.(2) 56,725 6,888 Netflix, Inc.(2) 110,750 4,753 NIKE, Inc. Class B 39,300 1,843 Ross Stores, Inc. 52,625 1,888 Yum! Brands, Inc. 133,350 3,664 -------- 26,036 -------- CONSUMER STAPLES--15.6% Archer-Daniels-Midland Co. 77,050 2,140 Brown-Forman Corp. 51,106 1,984 Colgate-Palmolive Co. 114,925 6,778 General Mills, Inc. 77,825 3,882 Hansen Natural Corp.(2) 171,050 6,158 Kroger Co. (The) 172,375 3,658 Wal-Mart Stores, Inc. 165,425 8,619 Walgreen Co. 63,100 1,638 -------- 34,857 -------- ENERGY--4.8% Chevron Corp. 29,400 1,977 Exxon Mobil Corp. 57,925 3,945 Occidental Petroleum Corp. 47,700 2,654 Southwestern Energy Co.(2) 72,950 2,166 -------- 10,742 -------- FINANCIALS--2.3% AFLAC, Inc. 90,850 1,759 HCC Insurance Holdings, Inc. 64,500 1,624 Hudson City Bancorp, Inc. 155,600 1,819 -------- 5,202 -------- HEALTH CARE--18.6% Amgen, Inc.(2) 119,100 5,898 Baxter International, Inc. 72,900 3,734 Cephalon, Inc.(2) 32,200 2,193 Endo Pharmaceuticals Holdings, Inc.(2) 112,050 1,981 Express Scripts, Inc.(2) 75,775 3,498 Forest Laboratories, Inc.(2) 67,300 1,478 SHARES VALUE ------- -------- HEALTH CARE--CONTINUED Gen-Probe, Inc.(2) 56,050 $ 2,555 Gilead Sciences, Inc.(2) 132,475 6,136 Life Technologies Corp.(2) 91,125 2,960 Omnicare, Inc. 180,750 4,427 Waters Corp.(2) 60,350 2,230 Watson Pharmaceuticals, Inc.(2) 150,000 4,666 -------- 41,756 -------- INDUSTRIALS--7.3% Burlington Northern Santa Fe Corp. 43,450 2,614 Lockheed Martin Corp. 78,575 5,424 Norfolk Southern Corp. 103,825 3,504 Republic Services, Inc. 284,550 4,880 -------- 16,422 -------- INFORMATION TECHNOLOGY--30.9% Akamai Technologies, Inc.(2) 80,150 1,555 Apple, Inc.(2) 61,000 6,412 Broadcom Corp.(2) 117,230 2,342 Cisco Systems, Inc.(2) 506,748 8,498 Cree, Inc.(2) 74,250 1,747 F5 Networks, Inc.(2) 250,700 5,252 Google, Inc.(2) 6,400 2,228 Hewlett-Packard Co. 188,450 6,042 Intel Corp. 210,775 3,172 Microsoft Corp. 369,575 6,789 Oracle Corp. 544,650 9,842 Red Hat, Inc.(2) 229,750 4,099 Sybase, Inc.(2) 70,150 2,125 WebMD Health Corp.(2) 136,050 3,034 Western Digital Corp.(2) 243,800 4,715 Western Union Co. (The) 120,550 1,515 -------- 69,367 -------- MATERIALS--3.4% CF Industries Holdings, Inc. 37,125 2,641 Freeport-McMoRan Copper & Gold, Inc. 55,450 2,113 Terra Industries, Inc. 99,600 2,798 -------- 7,552 -------- See Notes to Financial Statements 8 VIRTUS CAPITAL GROWTH FUND SCHEDULE OF INVESTMENTS (CONTINUED) MARCH 31, 2009 ($ reported in thousands) SHARES VALUE ------- -------- TELECOMMUNICATION SERVICES--1.1% American Tower Corp. Class A(2) 82,650 $ 2,515 -------- UTILITIES--2.0% AES Corp. (The)(2) 313,825 1,823 NRG Energy, Inc.(2) 151,500 2,667 -------- 4,490 -------- ----------------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $239,838) 218,939 ----------------------------------------------------------------------------- TOTAL LONG TERM INVESTMENTS--97.6% (IDENTIFIED COST $239,838) 218,939 ----------------------------------------------------------------------------- SHARES VALUE ------- -------- SHORT-TERM INVESTMENTS--2.5% MONEY MARKET MUTUAL FUNDS--2.5% State Street Institutional Liquid Reserves Fund (seven-day effective yield 0.577%) 5,665,636 $ 5,666 -------- ----------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $5,666) 5,666 ----------------------------------------------------------------------------- TOTAL INVESTMENTS--100.1% (IDENTIFIED COST $245,504) 224,605(1) Other assets and liabilities, net--(0.1)% (216) -------- NET ASSETS--100.0% $224,389 ======== + Security classifications are based on sectors. Security abbreviations definitions are located in the glossary on page 3. FOOTNOTE LEGEND: (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 8 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing. See Notes to Financial Statements 9 VIRTUS CAPITAL GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2009 (Amounts reported in thousands except shares and per share amounts) ASSETS Investment securities at value(1) .............................. $ 224,605 Receivables Fund shares sold ............................................ 13 Dividends ................................................... 220 Prepaid expenses ............................................... 22 ----------- Total assets .............................................. 224,860 ----------- LIABILITIES Payables Fund shares repurchased ..................................... 98 Investment advisory fees .................................... 127 Distribution and service fees ............................... 49 Administration fees ......................................... 16 Transfer agent fees ......................................... 122 Trustees' fee and expenses .................................. 4 Professional fees ........................................... 27 Other accrued expenses ...................................... 28 ----------- Total liabilities ......................................... 471 ----------- NET ASSETS ..................................................... $ 224,389 =========== NET ASSETS CONSIST OF: Capital paid in on shares of beneficial interest ............... $ 442,346 Accumulated undistributed net realized gain (loss) ............. (197,058) Net unrealized appreciation (depreciation) ..................... (20,899) ----------- NET ASSETS ..................................................... $ 224,389 =========== CLASS A Net asset value per share (net assets / shares outstanding) .... $9.82 Offering price per share $9.82 /(1-5.75%) ...................... $10.42 Shares of beneficial interest outstanding, no par value, unlimited authorization ..................................... 22,296,815 Net Assets ..................................................... $ 218,922 CLASS B Net asset value (net assets / shares outstanding) and offering price per share .................................... $8.84 Shares of beneficial interest outstanding, no par value, unlimited authorization ..................................... 435,655 Net Assets ..................................................... $ 3,852 CLASS C Net asset value (net assets / shares outstanding) and offering price per share .................................... $9.65 Shares of beneficial interest outstanding, no par value, unlimited authorization ..................................... 167,376 Net Assets ..................................................... $ 1,615 (1)Investment securities at cost ............................... $ 245,504 See Notes to Financial Statements 10 VIRTUS CAPITAL GROWTH FUND STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2009 (Reported in thousands) INVESTMENT INCOME Dividends .......................................................... $ 3,310 Interest ........................................................... 42 Security lending ................................................... 73 Foreign taxes withheld ............................................. (22) --------- Total investment income ....................................... 3,403 --------- EXPENSES Investment advisory fees ........................................... 2,184 Service fees, Class A .............................................. 759 Distribution and service fees, Class B ............................. 58 Distribution and service fees, Class C ............................. 25 Administration fees ................................................ 263 Transfer agent fees and expenses ................................... 955 Custodian fees ..................................................... 44 Printing fees and expenses ......................................... 62 Professional fees .................................................. 37 Registration fees .................................................. 42 Trustees fees and expenses ......................................... 28 Miscellaneous expenses ............................................. 47 --------- Total expenses ................................................ 4,504 --------- NET INVESTMENT INCOME (LOSS) ....................................... (1,101) --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ............................ (76,683) Net change in unrealized appreciation (depreciation) on investments (48,521) --------- NET GAIN (LOSS) ON INVESTMENTS ..................................... (125,204) --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS. ... $(126,305) ========= See Notes to Financial Statements 11 VIRTUS CAPITAL GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS (Reported in thousands)
4/1/08 - 11/1/07 - 11/1/06 - 3/31/09 3/31/08 10/31/07 --------- --------- --------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) ........................... $ (1,101) $ (871) $ (867) Net realized gain (loss) ............................... (76,683) (4,919) 29,907 Net change in unrealized appreciation (depreciation) ... (48,521) (80,863) 42,012 --------- -------- -------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ...................................... (126,305) (86,653) 71,052 --------- -------- -------- FROM SHARE TRANSACTIONS: SALE OF SHARES Class A (675, 229 and 1,650 shares, respectively) ...... 8,170 3,659 27,320 Class B (56, 26 and 65 shares, respectively) ........... 627 388 972 Class C (4, 2 and 9 shares, respectively) .............. 52 32 150 PLAN OF REORGANIZATION (NOTE 10) Class A (0, 0 and 1,761 shares, respectively) .......... -- -- 27,397 Class B (0, 0 and 302 shares, respectively) ............ -- -- 4,297 Class C (0, 0 and 289 shares, respectively) ............ -- -- 4,480 SHARES REPURCHASED Class A (3,839, 1,919 and 7,120 shares, respectively) .. (48,364) (31,209) (116,707) Class B (198, 109 and 330 shares, respectively) ........ (2,326) (1,609) (4,941) Class C (55, 36 and 46 shares, respectively) ........... (609) (580) (786) --------- -------- -------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ................................... (42,450) (29,319) (57,818) --------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS .................. (168,755) (115,972) 13,234 NET ASSETS Beginning of period .................................... 393,144 509,116 495,882 --------- -------- -------- END OF PERIOD .......................................... $ 224,389 $393,144 $509,116 ========= ======== ======== Accumulated undistributed net investment income (loss) at end of period ....................... $ -- $ (8) $ (8)
See Notes to Financial Statements 12 THIS PAGE INTENTIONALLY BLANK. VIRTUS CAPITAL GROWTH FUND FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET NET REALIZED TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(1) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS ----------------------------------------------------------------------------------------------------- CLASS A 4/1/08 to 3/31/09 $15.00 (0.04) (5.14) (5.18) -- -- -- 11/1/07 to 3/31/08 18.18 (0.03) (3.15) (3.18) -- -- -- 11/1/06 to 10/31/07 15.78 (0.03) 2.43 2.40 -- -- -- 11/1/05 to 10/31/06 14.89 (0.05) 1.02 0.97 (0.08) -- (0.08) 11/1/04 to 10/31/05 14.21 0.07 0.61 0.68 -- -- -- 11/1/03 to 10/31/04 13.90 (0.06) 0.37 0.31 -- -- -- CLASS B 4/1/08 to 3/31/09 $13.61 (0.13) (4.64) (4.77) -- -- -- 11/1/07 to 3/31/08 16.55 (0.07) (2.87) (2.94) -- -- -- 11/1/06 to 10/31/07 14.47 (0.14) 2.22 2.08 -- -- -- 11/1/05 to 10/31/06 13.69 (0.15) 0.93 0.78 -- -- -- 11/1/04 to 10/31/05 13.16 (0.05) 0.58 0.53 -- -- -- 11/1/03 to 10/31/04 12.96 (0.15) 0.35 0.20 -- -- -- CLASS C 4/1/08 to 3/31/09 $14.85 (0.14) (5.06) (5.20) -- -- -- 11/1/07 to 3/31/08 18.06 (0.08) (3.13) (3.21) -- -- -- 11/21/06(5) to 10/31/07 15.95 (0.16) 2.27 2.11 -- -- -- NET NET RATIO OF NET CHANGE ASSET ASSETS, RATIO OF INVESTMENT IN NET VALUE, END OF EXPENSES TO INCOME (LOSS) PORTFOLIO ASSET END OF TOTAL PERIOD AVERAGE TO AVERAGE TURNOVER VALUE PERIOD RETURN(2) (000'S) NET ASSETS NET ASSETS RATE ------------------------------------------------------------------------------------------------------ CLASS A 4/1/08 to 3/31/09 (5.18) $ 9.82 (34.53)% $218,922 1.42% (0.33)% 92% 11/1/07 to 3/31/08 (3.18) 15.00 (17.49)(4) 382,033 1.43(3) (0.46)(3) 33(4) 11/1/06 to 10/31/07 2.40 18.18 15.21 493,633 1.41 (0.16) 90 11/1/05 to 10/31/06 0.89 15.78 6.54 486,845 1.37 (0.31) 167 11/1/04 to 10/31/05 0.68 14.89 4.79 580,058 1.36 0.45 67 11/1/03 to 10/31/04 0.31 14.21 2.23 844,523 1.34 (0.39) 57 CLASS B 4/1/08 to 3/31/09 (4.77) $ 8.84 (35.05)% $ 3,852 2.17% (1.09)% 92% 11/1/07 to 3/31/08 (2.94) 13.61 (17.76)(4) 7,874 2.17(3) (1.20)(3) 33(4) 11/1/06 to 10/31/07 2.08 16.55 14.37 10,937 2.16 (0.93) 90 11/1/05 to 10/31/06 0.78 14.47 5.70 9,038 2.12 (1.06) 167 11/1/04 to 10/31/05 0.53 13.69 4.03 11,918 2.11 (0.34) 67 11/1/03 to 10/31/04 0.20 13.16 1.54 16,314 2.09 (1.13) 57 CLASS C 4/1/08 to 3/31/09 (5.20) $ 9.65 (35.02)% $ 1,615 2.17% (1.09)% 92% 11/1/07 to 3/31/08 (3.21) 14.85 (17.77)(4) 3,237 2.17(3) (1.20)(3) 33(4) 11/21/06(5) to 10/31/07 2.11 18.06 13.23(4) 4,546 2.15(3) (1.03)(3) 90(4)
(1) Computed using average shares outstanding. (2) Sales charges are not reflected in total return calculation. (3) Annualized. (4) Not annualized. (5) Inception date. See Notes to Financial Statements 14 and 15 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 1. ORGANIZATION Effective October 1, 2008, the Phoenix Funds became Virtus Mutual Funds, and all of the Funds were renamed to reflect the new Virtus name. On October 20, 2008, the Trusts' names were also updated to reflect the new name. Virtus Equity 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, fourteen funds of the Trust are offered for sale, of which the Virtus Capital Growth Fund (the "Fund") is reported in this annual report. The Fund's investment objective is outlined in the Fund Summary Page. The Fund offers Class A shares, Class B shares and Class C shares. Class A shares are 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 Fund when redeemed; however, a 1% contingent deferred sales charge ("CDSC") may be imposed on certain redemptions made within one year following purchases on which a finder's fee has been paid. The one-year period begins on the last day of the month preceding the month in which the purchase was made. Class B shares are sold with a contingent deferred sales charge which declines from 5% to zero depending on the period of time the shares are held. Class C shares are sold with a 1% contingent deferred sales charge, if applicable, if redeemed within one year of purchase. Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class bears different distribution and/or service expenses and has exclusive voting rights with respect to its distribution plan. Income and other expenses and realized and unrealized gains and losses of the Fund are borne pro rata by the holders of each class of shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount 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. A. SECURITY VALUATION: 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. Debt securities are valued on the basis of broker quotations or valuations provided by a pricing service, which utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities in determining value. Due to excessive volatility in the current market (please see Note 12 on Market Conditions), valuations developed through pricing techniques may materially vary from the actual amounts realized upon sale of the securities. 16 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 As required, some securities and assets may be valued at fair value as determined in good faith by or under the direction of the Trustees. Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (generally, the close of the NYSE) that may impact the value of securities traded in these foreign markets. In these cases, information from an external vendor may be utilized to adjust closing market prices of certain foreign common stocks to reflect their fair value. Because the frequency of significant events is not predictable, fair valuation of certain foreign common stocks may occur on a frequent basis. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market. Investments in underlying money market mutual funds are valued at each fund's closing net asset value. The Fund has adopted the provisions of Statement of Financial Accounting Standards No. 157 ("SFAS 157"). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, the Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: o Level 1 - quoted prices in active markets for identical securities o Level 2 - prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) o Level 3 - prices determined using significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The following is a summary of the inputs used to value the Fund's net assets as of March 31, 2009. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. ($ REPORTED IN THOUSANDS) INVESTMENTS IN SECURITIES VALUATION INPUTS MARKET VALUE ------------------------------------------ ------------------------- Level 1 - Quoted Prices $224,605 Level 2 - Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- -------- TOTAL $224,605 ======== B. SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums 17 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 and accretes discounts using the effective interest method. Realized gains and losses are determined on the identified cost basis. Dividend income is recorded using management's estimate of the income included in distributions received from the REIT investments. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts. C. INCOME TAXES: The Fund is treated as a separate taxable entity. It is the policy of the Fund to comply with the requirements of Subchapter M of the Internal Revenue 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. The Trust 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 they invest. FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has analyzed the Fund's tax positions and has concluded that no provision for income tax is required in the Fund's financial statements. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. D. DISTRIBUTIONS TO SHAREHOLDERS: Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences may include the treatment of non-taxable dividends, market premium and discount, non-deductible expenses, expiring capital loss carryovers, foreign currency gain or loss, gain or loss on futures contracts, partnerships, operating losses and losses deferred due to wash sales. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital paid in on shares of beneficial interest. E. EXPENSES: Expenses incurred by the Trust with respect to more than one fund are allocated in proportion to the net assets of each fund, except where allocation of direct expenses to each fund or an alternative allocation method can be more appropriately made. F. FOREIGN CURRENCY TRANSLATION: Foreign securities and other assets and liabilities are valued using 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 18 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 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 Trust does not isolate that portion of the results of operations arising from changes in exchange rates or from fluctuations which arise due to changes in the market prices of securities. G. SECURITIES LENDING: The Fund may loan securities to qualified brokers through an agreement with State Street Bank and Trust Company (the "Custodian"). Under the terms of the agreement, the 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. Cash collateral is invested in a short-term money market fund. Dividends earned on the collateral and premiums paid by the borrower are recorded as income by the Fund net of fees charged by the Custodian for its services 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 foreclosure on collateral. As of the close of business on September 18, 2008, Lehman Brothers Holding Inc. was in default of the security lending agreement with the Fund. As a result, State Street Bank and Trust Company as Securities Lending Agent took possession of the collateral and repurchased the securities in the Fund through open market purchases. Under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities ("FAS 140"), the criteria for sales accounting have been met. As a result of recording the sale of the original securities out on loan at market value and the repurchase of the identical securities into the Fund at replacement value, the Fund had realized losses of $38 ($ reported in thousands), which did not have a material impact on the financial statements or net asset values of the Fund. The transactions are being treated as non-taxable events. At March 31, 2009, the Fund had no securities on loan. 3. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS ($ REPORTED IN THOUSANDS EXCEPT AS NOTED) At end of business December 31, 2008, Virtus Investment Partners, Inc. ("Virtus") spun off from The Phoenix Companies, Inc. ("PNX"), into an independent publicly traded company which through its affiliates provides asset management and related services to individuals and institutions. Virtus Investment Advisers, Inc. ("VIA," the "Adviser," formerly known as Phoenix Investment Counsel, Inc.) and VP Distributors, Inc. ("VP Distributors," formerly known as Phoenix Equity Planning Corporation) are indirect wholly-owned subsidiaries of Virtus. Due to the spin-off, the asset management subsidiaries have changed their names to reflect the Virtus brand. As compensation for its services to the Trust, the Adviser is entitled to a fee based upon the following annual rates as a percentage of the average daily net assets of the Fund: 1ST $1 $1+ BILLION - $2+ BILLION $2 BILLION BILLION ------- ------------- ------- 0.70% 0.65% 0.60% The Adviser manages the Fund's investment program and general operations of the Fund, including oversight of the Fund's subadviser, Harris Investment Management, Inc. ("HIM" or "Harris"). 19 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 As distributor of the Fund's shares, VP Distributors has advised the Funds that it retained net selling commissions and deferred sales charges for the fiscal year (the "period") ended March 31, 2009, as follows: CLASS A CLASS A CLASS B CLASS C NET SELLING DEFERRED DEFERRED DEFERRED COMMISSIONS SALES CHARGES SALES CHARGES SALES CHARGES ----------- ------------- ------------- ------------- $25 $ --* $18 $1 * Amount is less than $500 (not reported in thousands). The Fund pays VP Distributors distribution and/or service fees at the following annual rates as a percentage of the average daily net assets of each respective Class. CLASS A CLASS B CLASS C ------- ------- ------- 0.25% 1.00% 1.00% 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 net asset values per share at the time of the exchange. On exchanges with share classes that carry a contingent deferred sales charge, the CDSC schedule of the original shares purchased continues to apply. VP Distributors also serves as the Administrator to the Trust. For its services, which includes financial agent services, VP Distributors receives an administration fee at an annual rate of 0.09% of the first $5 billion, 0.08% on the next $10 billion, and 0.07% over $15 billion of the average net assets across all non-money market Virtus Mutual Funds and certain other funds. For the period ended March 31, 2009, the Fund incurred administration fees totaling $263. VP Distributors also serves as the Trust's transfer agent. For the period ended March 31, 2009, transfer agent fees were $955 as reported in the Statement of Operations. At March 31, 2009, Virtus and its affiliates, the retirement plans of Virtus and its affiliates, and Virtus affiliated Funds held shares of the Fund which may be redeemed at any time that aggregated the following: AGGREGATE NET ASSET SHARES VALUE --------- --------- Class A 1,118,160* $10,980 * Includes shares held by Harris Bankcorp, Inc. a minority investor in Virtus and an affiliate of Harris Investment Management, Inc. the subadviser to the Fund. 4. PURCHASES AND SALES OF SECURITIES ($ REPORTED IN THOUSANDS) Purchases and sales of investments securities (excluding U.S. Government and agency securities and short-term securities) during the period ended March 31, 2009, were as follows: PURCHASES SALES --------- -------- $284,266 $322,426 20 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 There were no purchases or sales of long-term U.S. Government and agency securities during the period ended March 31, 2009. 5. CREDIT RISK AND ASSET CONCENTRATIONS 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 the Fund's ability to repatriate such amounts. The Fund may invest a high percentage of its assets in specific sectors of the market in its pursuit of a greater investment return. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors. At March 31, 2009, the Fund held securities issued by various companies in the Information Technology Sector, representing 31% of the total investments of the Fund. 6. INDEMNIFICATIONS Under the Fund's organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, the Fund enters into contracts that contain a variety of indemnifications. The Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these arrangements. 7. REGULATORY EXAMS Federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Virtus (and, prior to the spin-off described in Note 3, PNX) and its subsidiaries (collectively "the Company") with securities and other laws and regulations affecting their registered products. There are currently no such matters which the Company believes will be material to these financial statements. 8. FEDERAL INCOME TAX INFORMATION ($ REPORTED IN THOUSANDS) At March 31, 2009, federal tax cost and aggregate gross appreciation (depreciation) of securities held by the Fund were as follows: NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION TAX COST APPRECIATION (DEPRECIATION) (DEPRECIATION) -------- ------------ -------------- -------------- $250,092 $19,439 $(44,926) $(25,487) The Fund has capital loss carryovers which may be used to offset future capital gains, as follows: Expiration Year --------------------------------------------------------------------- 2010 2011 2016 2017 Total ------- ------- ------ ------- -------- $97,731 $15,274 $4,365 $25,431 $142,801 21 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 The Fund may not realize the benefit of these losses to the extent the Fund does not realize gains on investments prior to the expiration of the capital loss carryovers. The Fund's amounts include losses acquired in connection with prior year's mergers. Utilization of these capital loss carryovers is subject to annual limitations. The Fund had $199,473 in capital loss carryovers which expired in 2009. Under current tax law, foreign currency and capital losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal period ended March 31, 2009 the Fund deferred post-October capital losses of $49,669. The components of distributable earnings on a tax basis (excluding unrealized appreciation (depreciation) which is disclosed in the first table above) consists of undistributed ordinary income of $0 and undistributed long-term capital gains of $0. The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions reported in the Statements of Changes in Net Assets, if any, are reported as ordinary income for federal tax purposes. 9. RECLASSIFICATION OF CAPITAL ACCOUNTS ($ REPORTED IN THOUSANDS) For financial reporting purposes, book basis capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Permanent reclassifications can arise from differing treatment of certain income and gain transactions, nondeductible current year net operating losses, expiring capital loss carryovers and investments in passive foreign investment companies. The reclassifications have no impact on the net assets or net asset value of the Fund. As of March 31, 2009, the Fund recorded reclassifications to increase (decrease) the accounts as listed below: CAPITAL PAID IN ON SHARES OF UNDISTRIBUTED ACCUMULATED BENEFICIAL NET INVESTMENT NET REALIZED INTEREST INCOME (LOSS) GAIN (LOSS) ------------ -------------- ------------ $(200,582) $1,108 $199,474 10. PLAN OF REORGANIZATION (ALL VALUES EXCEPT FOR PER SHARE AMOUNTS ARE REPORTED IN THOUSANDS) On March 9, 2007, the Fund acquired all of the net assets of Phoenix Nifty Fifty Fund ("Nifty Fifty") pursuant to an Agreement and Plan of Reorganization provided to shareholders in a Prospectus/Information Statement on December 7, 2006. The acquisition was accomplished by a tax-free exchange of 1,761 Class A shares, 302 Class B shares and 289 Class C shares of the Fund (valued at $27,397, $4,297 and $4,480, respectively) for 1,474 Class A shares, 261 Class B shares and 273 Class C shares of Nifty Fifty outstanding on March 9, 2007. Nifty Fifty had net assets on that date of $36,174 including $5,977 of net unrealized appreciation which were combined with those of the Fund. The aggregate net assets of the Fund immediately after the merger were $479,184. The shareholders of each class of Nifty Fifty received for each share owned approximately 1.19, 1.15, and 1.06 shares, respectively, of Class A, Class B, and Class C shares of the Fund. 22 VIRTUS CAPITAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 11. RECENTLY ISSUED ACCOUNTING STANDARDS In April 2009, FASB issued FASB Staff Position No. 157-4, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY ("FSP 157-4"). FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 (see Note 2A), when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 requires entities to describe the inputs used in valuation techniques used to measure fair value and changes in inputs over the period. FSP 157-4 expands the three-level hierarchy disclosure and the level three-roll forward disclosure for each major security type as described in paragraph 19 of FAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Management is currently evaluating the impact the implementation of FSP 157-4 will have on the Funds' financial statement disclosures, if any. In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why a fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect a fund's results of operations and financial position. Management is currently evaluating the impact of SFAS 161 on financial statement disclosures, if any. 12. MARKET CONDITIONS Events in the financial sector have resulted in an unusually high degree of volatility in the financial markets and the net asset value of many mutual funds, including the Funds. Such events include, but are not limited to, the seizure of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation by U.S. banking regulators, the bankruptcy filing of Lehman Brothers and sale of Merrill Lynch to Bank of America, and the government bailout of AIG. These companies represent financial institutions with which the Fund conducts business and/or whose securities are or may be held within the Fund. The potential investment of the Fund in these issuers, and the financial sector in general, as reflected in the Fund's Schedule of Investments, exposes investors to the negative (or positive) performance resulting from these and other events. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [GRAPHIC OMITTED] PRICEWATERHOUSECOOPERS To the Board of Trustees of Virtus Equity Trust and Shareholders of Virtus Capital Growth Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Virtus Capital Growth Fund (formerly Phoenix Capital Growth Fund, a series of Virtus Equity Trust (formerly Phoenix Equity Trust), hereafter referred to as the "Fund") at March 31, 2009, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Philadelphia, PA May 22, 2009 24 VIRTUS CAPITAL GROWTH FUND TAX INFORMATION NOTICE (UNAUDITED) MARCH 31, 2009 -------------------------------------------------------------------------------- For the fiscal year ended March 31, 2009, the Fund makes the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends ("QDI") to qualify for the lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by the Fund which qualifies for the dividends received deduction ("DRD") for corporate shareholders. The actual percentage of QDI and DRD for the calendar year will be designated in year-end tax statements. The Fund designates the amounts below, or if subsequently different, as long-term capital gains dividends ("LTCG") ($ reported in Thousands). QDI DRD LTCG --- --- ---- 0% 0% $ -- -------------------------------------------------------------------------------- 25 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) The Board of Trustees of the Trust, along with the Boards of Trustees of the other trusts in the Virtus Mutual Funds family of funds (collectively, the "Board"), are responsible for determining whether to approve the establishment and continuation of each investment advisory and sub-advisory agreement (each, an "Agreement") applicable to the Virtus Mutual Funds (collectively, the "Funds"). At meetings held on November 18 - 20, 2008, the Board, including a majority of the independent Trustees, considered and approved the continuation of each Agreement, as further discussed below. In approving each Agreement, the Board determined that the continued retention of the applicable adviser or subadviser was in the best interests of the Funds and their shareholders. The Trustees considered each Fund separately, though they also collectively took into account those interests that all the Funds had in common. In reaching their decisions, the Board considered information furnished throughout the year at regular Board meetings as well as information prepared specifically in connection with the annual review process. During the review process, the Board received assistance and advice from, and met separately with, independent legal counsel. The Board's determination contemplated a number of factors that the Trustees believed, in light of the legal advice furnished to them as well as their own business judgment, to be relevant. Some of the factors that the Board considered are described below, although the Trustees did not identify any particular information or factor as controlling but instead considered the Agreements in the totality of the circumstances. Each individual Trustee may have evaluated the information presented differently, giving different weights to different factors. NATURE, EXTENT AND QUALITY OF SERVICES. The majority of the Funds(1) 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, Virtus Investment Advisers, Inc. ("VIA") is responsible 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 Agreement with VIA, therefore, the Trustees considered VIA's process for supervising and managing the Funds' subadvisers, including (a) VIA's ability to select and monitor the subadvisers; (b) VIA's ability to provide the services necessary to monitor the subadvisers' compliance with the Funds' respective investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VIA'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: (d) the experience, capability and integrity of VIA's management and other personnel; (e) the financial position of VIA; (f) the quality of VIA's own regulatory and legal compliance policies, procedures and systems; (g) the nature, extent and quality of administrative and other services provided by VIA to the Funds; and (h) VIA's supervision of the Funds' other service providers. Finally, the Board also noted the extent of benefits ---------- (1) DURING THE PERIOD BEING REPORTED, THE ONLY FUNDS THAT DID NOT EMPLOY A MANAGER OF MANAGERS STRUCTURE WERE VIRTUS GROWTH & INCOME FUND, WHICH IS A SERIES OF VIRTUS EQUITY TRUST; AND VIRTUS WEALTH ACCUMULATOR FUND, VIRTUS WEALTH BUILDER FUND, VIRTUS DIVERSIFIER FUND AND VIRTUS ALTERNATIVES DIVERSIFIER FUND, WHICH ARE SERIES OF VIRTUS OPPORTUNITIES TRUST. VIA ACTED AS THE ADVISER FOR THESE FUND WITHOUT EMPLOYING A SUBADVISER, AND THE BOARD CONSIDERED THE VIA AGREEMENT WITH RESPECT TO THESE FUNDS IN THAT CONTEXT. 26 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) that are provided to Fund shareholders as a result of being part of the family of Virtus Mutual Funds, including the right to exchange investments between the same class of Funds without a sales charge, the ability to reinvest Fund dividends into other Funds and the right to combine holdings in other Funds to obtain a reduced sales charge. With respect to the sub-advisory 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. In considering the renewal of the sub-advisory Agreements, therefore, the Board considered each subadviser's investment management process, including (a) the experience, capability and integrity of the subadviser's management and other personnel committed by the subadviser to its respective Fund(s); (b) the financial position of the subadviser; (c) the quality and commitment of the subadviser's regulatory and legal compliance policies, procedures and systems; and (d) the subadviser's brokerage and trading practices. After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services provided by VIA and each subadviser were reasonable and beneficial to the Funds and their shareholders. INVESTMENT PERFORMANCE. The Board placed significant emphasis on its consideration of the investment performance of the Funds, in view of its importance to shareholders, and evaluated Fund performance in the context of the special considerations that a manager-of-managers structure requires. The Board also considered that VIA continued to be proactive in seeking to replace and/or add subadvisers as necessary, with a view toward improving Fund performance over the long term. While consideration was given to performance reports and discussions at Board meetings throughout the year, particular attention in assessing such performance was given to a report (the "Lipper Report") for the Funds prepared by Lipper Inc. ("Lipper") and furnished specifically for the contract renewal process. (Lipper is an independent provider of investment company data retained by the Funds for this purpose.) The Lipper Report presented each Fund's short-term and long-term performance relative to a peer group of other mutual funds and relevant benchmarks, as selected by Lipper. The Board considered the composition of each peer group, selection criteria and the appropriateness of the benchmark used for each Fund. The Board also assessed each Fund's performance in the context of its review of the fees and expenses of each Fund as well as VIA's profitability. The Board noted that while many of the Funds had generally performed in line with their respective benchmarks and peer groups during the periods measured, some of the Funds had underperformed in comparison with their respective benchmarks and/or peer groups. The Board noted that certain of the Funds' underperformance was slight, and that some of the Funds underperforming their benchmarks and/or peer groups for a given period had outperformed such benchmarks and/or peer groups during other periods. Where significant, the Board extensively considered the performance of the underperforming Funds and the reasons for the performance issues. The Board discussed the possible reasons for the underperformance with VIA, and spoke with representatives from VIA regarding plans to monitor and address performance issues during the coming year. 27 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) The Board ultimately determined, within the context of all of its considerations in connection with the Agreements, that the Funds' overall investment performance was reasonable, and concluded that VIA's and each subadviser's performance record and process in managing the Funds merited approval of the continuation of the Agreements. However, the Board noted that certain Funds' performance would continue to be closely monitored and it expected that if performance over a longer period of time did not improve the adviser would recommend that the subadviser be replaced in a timely manner. PROFITABILITY. The Board also considered the level of profits realized by VIA and its affiliates in connection with the operation of the Funds. In this regard, the Board reviewed the analysis presented regarding the overall profitability of VIA for its management of the Virtus Mutual Funds, as well as its profits and those of its affiliates for managing and providing other services to each Fund. In addition to the fees paid to VIA and its affiliates, the Trustees considered any other benefits derived by VIA or its affiliates from their relationship with the Funds. Specific attention was paid to the methodology used to allocate costs to each Fund, in recognition of the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this regard, the Board noted that the allocations appeared reasonable, and concluded that the profitability to VIA from each Fund was reasonable in light of the quality of all services rendered to the Funds by VIA and its affiliates. The Board did not separately review profitability information for each subadviser, noting that the sub-advisory fees are paid by VIA rather than the Funds, so that Fund shareholders are not directly impacted by those fees. MANAGEMENT FEES AND TOTAL EXPENSES. In evaluating the management fees and total expenses of each Fund, the Board reviewed information provided by VIA and comparisons to other funds in each Fund's peer group as presented in the Lipper Report. The Board noted that certain Funds had higher gross expenses when expressed as a percentage of net assets than those of such Funds' larger peers, which the Trustees considered in the context of these Funds' expectations for future growth. Finally, the Board also noted that several of the Funds had fee waivers and/or expense caps in place to limit the total expenses incurred by the Funds and their shareholders. Based upon the information presented by VIA and Lipper, the Trustees then determined, in the exercise of their business judgment, that the management fees charged by VIA and the total expenses of the Funds were reasonable, both on an absolute basis and in comparison with the fees and expenses of other funds in each Fund's peer group and the industry at large. The Board did not receive comparative fee information relating specifically to sub-advisory fees, in light of the fact that the sub-advisory fees are paid by VIA and not by the Funds, so that Fund shareholders are not directly impacted by those fees. 28 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) ECONOMIES OF SCALE. The Board noted that the management fees for several of the Funds included breakpoints based on assets under management, and that fee waivers and/or expense caps were also in place for several of the Funds. The Board determined that VIA and the Funds likely would achieve certain economies of scale, particularly in relationship to certain fixed costs, and that shareholders of the Funds would have an opportunity to benefit from these economies of scale. In considering the sub-advisory Agreements, the Board also considered the existence of any economies of scale and whether they would be passed along to the Funds' shareholders, but noted that any such economies would likely be generated at the Fund level rather than at the subadviser level. 29 FUND MANAGEMENT TABLES (UNAUDITED) Information pertaining to the trustees and officers of the Trust as of March 31, 2009 is set forth below. The statement of additional information (SAI) includes additional information about the trustees and is available without charge, upon request, by calling (800) 243-4361. The address of each individual, unless otherwise noted, is 100 Pearl Street, Hartford, CT 06103-4506. There is no stated term of office for trustees of the Trust.
------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ Leroy Keith, Jr. Managing Director, Almanac Capital Management (commodities business) (2007-present). Partner, YOB: 1939 Stonington Partners, Inc. (private equity firm) (2001-2007). Director/Trustee, Evergreen Funds (88 Elected: 1993 portfolios). 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Philip R. McLoughlin Partner, Cross Pond Partners, LLC (2006-Present). Director, World Trust Fund. Chairman and Trustee, YOB: 1946 The Phoenix Edge Series Fund (2003-present). Director, DTF Tax-Free Income Fund, Inc., Duff & Phelps Elected: 1993 Utility and Corporate Bond Trust, Inc. and DNP Select Income Fund Inc. Managing Director, SeaCap, 51 Funds Asset Management Fund I LP. ------------------------------------------------------------------------------------------------------------------------------------ Geraldine M. McNamara Retired. Managing Director, U.S. Trust Company of New York (private bank) (1982-2006). YOB: 1951 Elected: 2001 51 Funds ------------------------------------------------------------------------------------------------------------------------------------ James M. Oates Managing Director, Wydown Group (consulting firm) (1994-present). Chairman, Hudson Castle Group, Inc. YOB: 1946 (formerly IBEX Capital Markets, Inc.) (financial services) (1997-2006). Director, Stifel Financial. Elected: 1993 Chairman and Trustee, John Hancock Trust (93 portfolios) and John Hancock Funds II (74 portfolios). 49 Funds Non-Executive Chairman, Hudson Castle Group, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Segerson Managing Director, Northway Management Company (1998-present). YOB: 1946 Elected: 1998 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Ferdinand L.J. Verdonck Retired. Director, Galapagos N.V. (biotechnology). Mr. Verdonck is also a director of several YOB: 1942 non-U.S. companies. Elected: 2004 49 Funds ------------------------------------------------------------------------------------------------------------------------------------
30 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED) INTERESTED TRUSTEE The individual listed below is an "interested person" of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.
------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ George R. Aylward(1) Director, President and Chief Executive Officer (2008-present), Director and President (2006-2008), YOB: 1964 Chief Operating Officer (2004-2006), Vice President, Finance (2001-2002), Virtus Investment Partners, Elected: 2006 Inc. and/or certain of its subsidiaries. Senior Executive Vice President and President, Asset 51 Funds Management (2007-2008), Senior Vice President and Chief Operating Officer, Asset Management (2004-2007), Vice President and Chief of Staff (2001-2004), The Phoenix Companies, Inc. Various senior officer and directorship positions with Phoenix affiliates (2005-2008). President (2006-present), Executive Vice President (2004-2006), the Virtus Mutual Funds Family. Chairman, President and Chief Executive Officer, The Zweig Fund Inc. and The Zweig Total Return Fund Inc. (2006-present). ------------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Aylward is an "interested person," as defined in the Investment Company Act of 1940, by reason of his relationship with Virtus Investment Partners, Inc. and/or its affiliates. 31 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Nancy G. Curtiss Senior Vice President Executive Vice President, Head of Operations (since 2009), Senior Vice YOB: 1952 since 2006. President, Operations (2008-2009), Vice President, Head of Asset Management Operations (2007-2008), Vice President (2003-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Assistant Treasurer (2001-2009), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Ms. Curtiss is also Treasurer of various other investment companies within the Virtus Mutual Funds Complex (1994-present). ------------------------------------------------------------------------------------------------------------------------------------ Francis G. Waltman Senior Vice President Executive Vice President, Head of Product Management (since 2009), YOB: 1962 since 2008. Senior Vice President, Asset Management Product Development (2008-2009), Senior Vice President, Asset Management Product Development (2005-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Director (since 2008), Director and President (2006-2007), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Director and Senior Vice President (since 2008), Senior Vice President (2006-2007), Virtus Investment Advisers, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Marc Baltuch Vice President and Chief Compliance Officer, Zweig-DiMenna Associates LLC (1989-present). c/o Zweig-DiMenna Chief Compliance Officer Vice President, The Zweig Total Return Fund, Inc. (2004-present). Vice Associates, LLC since 2004. President, The Zweig Fund, Inc. (2004-present). President and Director 900 Third Avenue of Watermark Securities, Inc. (1991-present). Assistant Secretary, New York, NY 10022 Gotham Advisors Inc. (1990-2005). YOB: 1945 ------------------------------------------------------------------------------------------------------------------------------------ W. Patrick Bradley Chief Financial Officer Senior Vice President, Fund Administration (since 2009), Vice YOB: 1972 and Treasurer since 2006. President, Fund Administration (2007-present), Second Vice President, Fund Control & Tax (2004-2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer (2006-present), Assistant Treasurer (2004-2006), The Phoenix Edge Series Fund. Chief Financial Officer and Treasurer (2005-present), Assistant Treasurer (2004-2006), certain funds within the Virtus Mutual Funds Family. ------------------------------------------------------------------------------------------------------------------------------------
32 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Kevin J. Carr Vice President, Senior Vice President (since 2009), Counsel and Secretary YOB: 1954 Chief Legal Officer, (2008-present) and Vice President (2008-2009), Virtus Investment Counsel and Secretary Partners, Inc. and/or certain of its subsidiaries (2008-present). Vice since 2005. President and Counsel, Phoenix Life Insurance Company (2005-2008). Compliance Officer of Investments and Counsel, Travelers Life & Annuity Company (January 2005-May 2005). Assistant General Counsel and certain other positions, The Hartford Financial Services Group (1995-2005). ------------------------------------------------------------------------------------------------------------------------------------
33 THIS PAGE INTENTIONALLY BLANK. THIS PAGE INTENTIONALLY BLANK. VIRTUS EQUITY TRUST 101 Munson Street Greenfield, MA 01301-9668 TRUSTEES George R. Aylward Leroy Keith, Jr. Philip R. McLoughlin, Chairman Geraldine M. McNamara James M. Oates Richard E. Segerson Ferdinand L.J. Verdonck OFFICERS George R. Aylward, President Nancy G. Curtiss, Senior Vice President Francis G. Waltman, Senior Vice President Marc Baltuch, Vice President and Chief Compliance Officer W. Patrick Bradley, Chief Financial Officer and Treasurer Kevin J. Carr, Vice President, Chief Legal Officer, Counsel and Secretary INVESTMENT ADVISER Virtus Investment Advisers, Inc. 100 Pearl Street Hartford, CT 06103-4506 PRINCIPAL UNDERWRITER VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 TRANSFER AGENT VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 CUSTODIAN State Street Bank and Trust Company P.O. Box 5501 Boston, MA 02206-5501 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 2001 Market Street Philadelphia, PA 19103-7042 HOW TO CONTACT US Mutual Fund Services 1-800-243-1574 Advisor Consulting Group 1-800-243-4361 Telephone Orders 1-800-367-5877 Text Telephone 1-800-243-1926 Web site VIRTUS.COM -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- ------------- PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT 1793 ------------- [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS c/o State Street Bank and Trust Company P.O. Box 8301 Boston, MA 02266-8301 For more information about Virtus mutual funds, please call your financial representative, contact us at 1-800-243-1574 or VIRTUS.COM. 8012 4-09 ANNUAL REPORT [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS Virtus Mid-Cap Value Fund -------------------------------------------------------------------------------- WOULDN'T YOU RATHER HAVE THIS DOCUMENT E-MAILED TO YOU? TRUST NAME: ELIGIBLE SHAREHOLDERS CAN SIGN VIRTUS EQUITY TRUST March 31, 2009 UP FOR E-DELIVERY AT VIRTUS.COM NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE TABLE OF CONTENTS VIRTUS MID-CAP VALUE FUND* ("Mid-Cap Value Fund") Message to Shareholders................................................ 1 Glossary............................................................... 3 Disclosure of Fund Expenses............................................ 4 Fund Summary........................................................... 6 Schedule of Investments................................................ 8 Statement of Assets and Liabilities.................................... 9 Statement of Operations................................................ 10 Statement of Changes in Net Assets..................................... 11 Financial Highlights................................................... 12 Notes to Financial Statements.......................................... 14 Report of Independent Registered Public Accounting Firm................ 21 Tax Information Notice (Unaudited)..................................... 22 Consideration of Advisory and Subadvisory Agreements by the Board of Trustees............................................ 23 Fund Management Tables................................................. 27 * Please see Notes 1 and 3 in the Notes to Financial Statements for more information on the name change. -------------------------------------------------------------------------------- PROXY VOTING PROCEDURES (FORM N-PX) The adviser and subadviser vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Trust's Board of Trustees. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, 2008, free of charge, by calling toll-free 1-800-243-1574. This information is also available through the Securities and Exchange Commission's website at http://www.sec.gov. FORM N-Q INFORMATION The Trust files a complete schedule of portfolio holdings for the Fund with the Securities and Exchange Commission (the "SEC") for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC's website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330. -------------------------------------------------------------------------------- This report is not authorized for distribution to prospective investors in the Virtus Mid-Cap Value Fund unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, the Fund's record and other pertinent information. MESSAGE TO SHAREHOLDERS Dear Fellow Shareholders of Virtus Mutual Funds: [PHOTO OMITTED] After the unprecedented economic events of 2008, investors were ready to greet the new year with great expectations. Instead, we were sorely disappointed. The first quarter of 2009 brought more dismal economic news as the worst financial crisis since the Great Depression continued, seemingly unabated. Consumer confidence and business sentiment spiraled downward on poor corporate earnings and woeful economic data. Major stock market indices posted their worst January and February returns on record, ultimately leading to a sixth straight down quarter. The new administration in Washington, D.C. responded with an alphabet-soup of financial recovery programs - TARP (Troubled Asset Relief Program), TALF (Term Asset-Backed Securities Loan Facility) and CAP (Capital Assistance Program) - conducted stress tests of troubled banks and took extreme measures in an attempt to rescue two of the "Big Three" automakers. But by March 9th, the Dow Jones Industrial Average(SM) was down 25.4 percent from the start of the year and the S&P 500(R) Index was off 27.4 percent. Then a number of promising signs appeared. Credit markets exhibited tentative evidence of stabilizing and the manufacturing sector reported modest increases in new orders. Retail sales gained slightly, and for the first time in two years the housing markets in some regions of the country indicated they may have hit bottom. There was a bounce in the financial markets, and March ended with the best monthly stock gains in more than six years. Whether this is the start of a significant "V"-shaped recovery or a temporary upswing of a "W" recovery remains to be seen. The second quarter began with a sprinkling of encouraging corporate earnings, and unemployment - while still a significant drag on the economy - shows signs of slowing. Questions remain on the effectiveness of the government's economic interventions, as well as the long-term impact of increasing budget deficits, yet we entered the second quarter with a glimmer of hope. The uncertainties of the economy are another reminder that investors should rely on the discipline and focus of professional investment managers and financial advisors when making decisions about personal investments. We encourage you to meet with your financial advisor and periodically review your portfolio to ensure it reflects your current investment objectives, your tolerance for risk, and your long-term financial goals. At Virtus, our commitments to quality investment solutions and superior customer service remain unchanged. We offer a wide range of equity, fixed income, and money market funds as well as alternative strategies that you may wish to consider as you review your investments. We recognize the economy and financial markets 1 still face substantial challenges, but our investment professionals remain committed to identifying the right options for your long-term investment needs. Your confidence in Virtus Mutual Funds is deeply appreciated. Sincerely, /s/ George R. Aylward George R. Aylward President, Virtus Mutual Funds MAY 1, 2009 WHENEVER YOU HAVE QUESTIONS ABOUT YOUR ACCOUNT OR REQUIRE ADDITIONAL INFORMATION, PLEASE VISIT US AT WWW.VIRTUS.COM OR CALL OUR SHAREOWNER SERVICES GROUP, TOLL FREE, AT 800-243-1574. PERFORMANCE DATA QUOTED REPRESENTS PAST RESULTS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN PERFORMANCE SHOWN ABOVE. 2 GLOSSARY ADR (AMERICAN DEPOSITARY RECEIPT) Represents shares of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares. CAP (CAPITAL ASSISTANCE PROGRAM) An element of the financial stability plan launched by the U.S. Department of Treasury to regain confidence in the financial industry. In this program, the U.S. Treasury makes capital available for financial institutions to borrow in order to enable them to continue to serve the public. FEDERAL RESERVE The central bank of the United States, responsible for controlling the 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. REITS (REAL ESTATE INVESTMENT TRUSTS) Real estate investment trusts are typically publicly traded companies that own, develop and operate income-producing real estate such as apartments, office buildings, hotels, shopping centers and other commercial properties. RUSSELL MIDCAP(R) INDEX The Russell Midcap(R) Index is a market capitalization-weighted index of medium-capitalization stocks of U.S. companies. The index is calculated on a total return basis with dividends reinvested. RUSSELL MIDCAP(R) VALUE INDEX The Russell Midcap(R) Value Index is a market capitalization-weighted index of medium-capitalization, value-oriented stocks of U.S. companies. The index is calculated on a total return basis with dividends reinvested. SPONSORED ADR An ADR which is issued with the cooperation of the company whose stock will underlie the ADR. These shares carry all the rights of the common share such as voting rights. ADRs must be sponsored to be able to trade on the NYSE. TALF (TERM ASSET-BACKED SECURITIES LOAN FACILITY) The TALF is intended to assist the credit markets in accommodating the credit needs of consumers and small businesses by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally. TARP (TROUBLED ASSET RELIEF PROGRAM) A government program created for the establishment and management of a Treasury fund, in an attempt to curb the ongoing financial crisis of 2007-2008. The fund was created by enacting the Emergency Economic Stabilization Act of 2008. THE INDEXES ARE UNMANAGED AND NOT AVAILABLE FOR DIRECT INVESTMENT; THEREFORE, THEIR PERFORMANCE DOES NOT REFLECT THE EXPENSES ASSOCIATED WITH ACTIVE MANAGEMENT OF AN ACTUAL PORTFOLIO. 3 VIRTUS MID-CAP VALUE FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 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 the Virtus Mid-Cap Value Fund (the "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 are sold without a sales charge and do not incur distribution and service fees. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the 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 period. The following Expense Table illustrates the Fund's costs in two ways. ACTUAL EXPENSES The first section of the accompanying table provides information about actual account values and actual expenses. You may use the information in this line, 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 first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second section of the accompanying table provides information about hypothetical account values and hypothetical expenses based on the 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 the other funds. 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 second line of the accompanying table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if those 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. 4 VIRTUS MID-CAP VALUE FUND DISCLOSURE OF FUND EXPENSES (UNAUDITED) (CONTINUED) FOR THE SIX-MONTH PERIOD OF OCTOBER 1, 2008 TO MARCH 31, 2009 EXPENSE TABLE -------------------------------------------------------------------------------- Beginning Ending Expenses Account Account Annualized Paid Value Value Expense During October 1, 2008 March 31, 2009 Ratio Period* -------------------------------------------------------------------------------- ACTUAL Class A $1,000.00 $ 638.00 1.54% $ 6.29 Class C 1,000.00 635.80 2.29 9.34 Class I 1,000.00 639.30 1.32 5.39 HYPOTHETICAL (5% RETURN BEFORE EXPENSES) Class A 1,000.00 1,017.16 1.54 7.77 Class C 1,000.00 1,013.37 2.29 11.56 Class I 1,000.00 1,018.27 1.32 6.66 ----------------------------------------------------------------------------- * Expenses are equal to the Fund's annualized expense ratio, which includes waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (182) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the period. The Fund may invest in other funds, and the annualized expense ratios noted above do not reflect fees and expenses associated with the underlying funds. If such fees and expenses were included, the expenses would have been higher. You can find more information about the Fund's expenses in the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to the prospectus. 5 TICKER SYMBOLS: A Share: FMIVX C Share: FMICX I Share: PIMVX MID-CAP VALUE FUND o Mid-Cap Value Fund (the "Fund") is diversified and has an investment objective of long-term capital growth. THERE IS NO GUARANTEE THAT THE FUND WILL ACHIEVE ITS OBJECTIVE. o For the fiscal year ended March 31, 2009, the Fund's Class A shares returned -42.59%, Class C shares returned -43.01% and Class I shares returned -42.42%. For the same period, the Russell MidCap(R) Index, a broad-based equity index, returned -40.81%; and the Russell MidCap(R) Value Index, the Fund's style-specific benchmark, returned -42.51%. ALL PERFORMANCE FIGURES ASSUME REINVESTMENT OF DISTRIBUTIONS AND EXCLUDE THE EFFECT OF SALES CHARGES. 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. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO YOUR SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. HOW DID THE MARKET PERFORM DURING THE FUND'S FISCAL YEAR? o The market exhibited tremendous volatility and weakness in the past 12 months, culminating in new lows at the end of the first quarter of 2009, despite the tremendous 19% rally in the month of March. Value outperformed Growth for the first 9 months of the fiscal year, but Growth surprisingly outperformed Value in the final Quarter. o The deepening economic and financial crisis spread globally and all asset classes, including the last standing bastion "Energy and Commodities," suffered severe losses. The auto industry's malaise further deteriorated and culminated in the ouster of GM's CEO by the Obama administration, leaving GM and Chrysler at the doorstep of bankruptcy. o The Federal Reserve (the "Fed"), Treasury, and Congress, intervened with a number of aggressive actions, including rate cuts, bailouts, and a whopping stimulus package of over 1 trillion dollars. WHAT FACTORS AFFECTED THE FUND'S PERFORMANCE DURING THE FISCAL YEAR? o The continued economic and financial crisis in the markets hit the Fund's consumer/building-related stocks particularly hard. o The absence of banking/financial stocks helped relative performance. THE PRECEDING INFORMATION IS THE OPINION OF THE PORTFOLIO MANAGEMENT ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. ANY SUCH OPINIONS ARE SUBJECT TO CHANGE AT ANY TIME BASED UPON MARKET CONDITIONS AND SHOULD NOT BE RELIED ON AS INVESTMENT ADVICE. INVESTING IN THE SECURITIES OF SMALL AND MID-SIZED COMPANIES INVOLVES GREATER RISKS AND PRICE VOLATILITY THAN INVESTING IN LARGER, MORE ESTABLISHED COMPANIES. SECTOR WEIGHTINGS AS OF 3/31/09* ----------------------------------------------- Consumer Discretionary 22% ----------------------------------------------- Industrials 20 ----------------------------------------------- Materials 17 ----------------------------------------------- Consumer Staples 16 ----------------------------------------------- Utilities 14 ----------------------------------------------- Energy 8 ----------------------------------------------- Financials 3 ----------------------------------------------- *% of total investments as of March 31, 2009. For information regarding the indexes and certain investment terms, see the glossary on page 3. 6 AVERAGE ANNUAL TOTAL RETURNS(1) for periods ended 3/31/09 --------------------------------------------------------------------------------
Inception 1 5 10 to Inception Year Years Years 3/31/09 Date ----------------------------------------------------------------------------------------- CLASS A SHARES AT NAV(2) -42.59% -3.83% 5.47% -- -- ----------------------------------------------------------------------------------------- CLASS A SHARES AT POP(3,4) -45.89 -4.96 4.84 -- -- ----------------------------------------------------------------------------------------- CLASS C SHARES AT NAV(2) -43.01 -- -- -6.63% 10/22/04 ----------------------------------------------------------------------------------------- CLASS C SHARES WITH CDSC(4) -43.01 -- -- -6.63 10/22/04 ----------------------------------------------------------------------------------------- CLASS I SHARES AT NAV -42.42 -- -- -37.84 3/10/08 ----------------------------------------------------------------------------------------- RUSSELL MIDCAP(R) INDEX -40.81 -3.53 2.27 NOTE 5 NOTE 5 ----------------------------------------------------------------------------------------- RUSSELL MIDCAP(R) VALUE INDEX -42.51 -3.81 3.13 NOTE 6 NOTE 6 ----------------------------------------------------------------------------------------- FUND EXPENSE RATIOS(7): A SHARES: 1.39%; C SHARES: 2.14%; I SHARES: 1.14%.
ALL RETURNS REPRESENT PAST PERFORMANCE WHICH IS NO GUARANTEE OF FUTURE RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN THE PERFORMANCE SHOWN. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THE ABOVE TABLE AND GRAPH BELOW DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. PLEASE VISIT VIRTUS.COM FOR PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END. (1) Total returns are historical and include changes in share price and the reinvestment of both dividends and capital gain distributions. (2) "NAV" (Net Asset Value) total returns do not include the effect of any sales charge. (3) "POP" (Public Offering Price) total returns include the effect of the maximum front-end 5.75% sales charge. (4) CDSC (Contingent Deferred Sales Charge) is applied to redemptions of Class C shares that do not have a sales charge applied at the time of purchase. CDSC charges for certain redemptions of Class A shares and all redemptions of Class C shares are 1% in the first year and 0% thereafter. (5) Index performance is -4.00% for Class C (since 10/22/04) and -36.84% for Class I (since 3/10/08). (6) Index performance is -4.85% for Class C (since 10/22/04) and -38.58% for Class I (since 3/10/08). (7) The expense ratios of the Fund are set forth according to the prospectus for the Fund effective 6/6/08 and may differ from the expense ratios disclosed in the Financial Highlight tables in this report. GROWTH OF $10,000 for periods ended 3/31 -------------------------------------------------------------------------------- This chart assumes an initial investment of $10,000 made on March 31, 1999, for Class A shares including any applicable sales charges or fees. The performance of the other share classes will be greater or less than that shown based on differences in inception dates, fees and sales charges. Performance assumes reinvestment of dividends and capital gain distributions. [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA USED IN PRINTED GRAPHIC AS FOLLOWS: Russell Russell Share MidCap(R) MidCap(R) Value Class A Index Index ------------- --------- --------------- 3/31/99 $ 9,425 $10,000 $10,000 3/31/00 10,004 13,077 10,414 3/31/01 13,337 11,509 11,854 3/31/02 16,471 12,651 13,566 3/31/03 12,504 9,931 10,900 3/31/04 19,508 14,979 16,524 3/31/05 23,363 17,083 19,554 3/31/06 25,276 20,762 23,523 3/31/07 31,797 23,211 27,553 3/37/08 27,953 21,140 23,664 3/31/09 16,049 12,512 13,605 For information regarding the indexes and certain investment terms, see the glossary on page 3. 7 VIRTUS MID-CAP VALUE FUND SCHEDULE OF INVESTMENTS MARCH 31, 2009 ($ reported in thousands) SHARES VALUE --------- -------- COMMON STOCKS+--99.4% CONSUMER DISCRETIONARY--21.8% Big Lots, Inc.(2) 588,000 $ 12,219 Foot Locker, Inc. 1,098,400 11,511 Fortune Brands, Inc. 248,300 6,096 Home Depot, Inc. (The) 520,400 12,260 Limited Brands, Inc. 1,211,800 10,543 Penney (J.C.) Co., Inc. 592,300 11,887 -------- 64,516 -------- CONSUMER STAPLES--16.0% Del Monte Foods Co. 1,352,600 9,860 Koninklijke Ahold NV Sponsored ADR 1,340,100 14,607 Safeway, Inc. 571,100 11,531 Sara Lee Corp. 1,408,300 11,379 -------- 47,377 -------- ENERGY--7.9% El Paso Corp. 944,300 5,902 Spectra Energy Corp. 842,042 11,906 Williams Cos., Inc. (The) 499,000 5,679 -------- 23,487 -------- FINANCIALS--2.7% Alleghany Corp.(2) 28,978 7,848 -------- INDUSTRIALS--20.4% ACCO Brands Corp.(2) 769,832 754 Con-Way, Inc. 345,500 6,195 Masco Corp. 893,600 6,237 Owens Corning, Inc.(2) 791,100 7,152 Raytheon Co. 187,300 7,294 Republic Services, Inc. 630,602 10,815 Thomas & Betts Corp.(2) 449,800 11,254 USG Corp.(2) 500,400 3,808 Waste Management, Inc. 270,400 6,922 -------- 60,431 -------- SHARES VALUE --------- -------- MATERIALS--17.0% Ball Corp. 275,800 $ 11,970 Crown Holdings, Inc.(2) 623,000 14,161 Owens-Illinois, Inc.(2) 595,750 8,603 Packaging Corp. of America 661,700 8,615 Weyerhaeuser Co. 254,200 7,008 -------- 50,357 -------- UTILITIES--13.6% Dominion Resources, Inc. 324,700 10,062 Duke Energy Corp. 837,884 11,999 Dynegy, Inc. Class A(2) 2,420,900 3,414 Mirant Corp.(2) 502,900 5,733 ONEOK, Inc. 402,000 9,097 -------- 40,305 -------- -------------------------------------------------------------------------------- TOTAL COMMON STOCKS (IDENTIFIED COST $529,416) 294,321 -------------------------------------------------------------------------------- TOTAL LONG TERM INVESTMENTS--99.4% (IDENTIFIED COST $529,416) 294,321 -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS--1.3% MONEY MARKET MUTUAL FUNDS--1.3% State Street Institutional Liquid Reserves Fund (seven-day effective yield 0.577%) 3,739,252 3,739 -------------------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST $3,739) 3,739 -------------------------------------------------------------------------------- TOTAL INVESTMENTS--100.7% (IDENTIFIED COST $533,155) 298,060(1) Other assets and liabilities, net--(0.7)% (2,025) -------- NET ASSETS--100.0% $296,035 ======== + Security classifications are based on sectors. Security abbreviation definitions are located in the glossary on page 3. Footnote Legend: (1) Federal Income Tax Information: For tax information at March 31, 2009, see Note 9 Federal Income Tax Information in the Notes to Financial Statements. (2) Non-income producing. See Notes to Financial Statements 8 VIRTUS MID-CAP VALUE FUND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2009 (Amounts reported in thousands except shares and per share amounts) ASSETS Investment securities at value(1) .............................................. $ 298,060 Receivables Fund shares sold ............................................................ 856 Dividends ................................................................... 477 Prepaid expenses ............................................................... 35 ----------- Total assets .............................................................. 299,428 ----------- LIABILITIES Payables Fund shares repurchased ..................................................... 1,133 Investment securities purchased ............................................. 1,608 Investment advisory fees .................................................... 177 Distribution and service fees ............................................... 92 Administration fees ......................................................... 24 Transfer agent fees ......................................................... 279 Trustees' fees and expenses ................................................. 5 Professional fees ........................................................... 29 Other accrued expenses ...................................................... 46 ----------- Total liabilities ......................................................... 3,393 ----------- NET ASSETS ..................................................................... $ 296,035 =========== NET ASSETS CONSIST OF: Capital paid in on shares of beneficial interest ............................... $ 607,560 Accumulated undistributed net investment income (loss) ......................... 2,245 Accumulated net realized gain (loss) ........................................... (78,675) Net unrealized appreciation (depreciation) ..................................... (235,095) ----------- NET ASSETS ..................................................................... $ 296,035 =========== CLASS A Net asset value per share (net assets/shares outstanding) ...................... $12.44 Offering price per share $12.44/(1-5.75%) ...................................... $13.20 Shares of beneficial interest outstanding, no par value, unlimited authorization 18,229,667 Net Assets ..................................................................... $ 226,815 CLASS C Net asset value (net assets/shares outstanding) and offering price per share ... $12.17 Shares of beneficial interest outstanding, no par value, unlimited authorization 4,714,699 Net Assets ..................................................................... $ 57,366 CLASS I Net asset value (net assets/shares outstanding) and offering price per share ... $12.44 Shares of beneficial interest outstanding, no par value, unlimited authorization 952,924 Net Assets ..................................................................... $ 11,854 (1)Investment securities at cost ............................................... $ 533,155
See Notes to Financial Statements 9 VIRTUS MID-CAP VALUE FUND STATEMENT OF OPERATIONS YEAR ENDED MARCH 31, 2009 (Reported in thousands) INVESTMENT INCOME Dividends ............................................................. $ 11,463 Interest .............................................................. 74 Foreign taxes withheld ................................................ (163) --------- Total investment income .......................................... 11,374 --------- EXPENSES Investment advisory fees .............................................. 3,738 Service fees, Class A ................................................. 962 Distribution and service fees, Class C ................................ 1,047 Administration fees ................................................... 421 Transfer agent fees and expenses ...................................... 1,431 Custodian fees ........................................................ 48 Printing fees and expenses ............................................ 100 Professional fees ..................................................... 41 Registration fees ..................................................... 70 Trustees fees and expenses ............................................ 45 Miscellaneous expenses ................................................ 74 --------- Total expenses ................................................... 7,977 --------- NET INVESTMENT INCOME (LOSS) .......................................... 3,397 --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on investments ............................... (78,498) Net change in unrealized appreciation (depreciation) on investments ... (180,367) --------- NET GAIN (LOSS) ON INVESTMENTS ........................................ (258,865) --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS. ...... $(255,468) =========
See Notes to Financial Statements 10 VIRTUS MID-CAP VALUE FUND STATEMENT OF CHANGES IN NET ASSETS (Reported in thousands)
4/1/08 - 7/1/07 - 7/1/06 - 3/31/09 3/31/08 6/30/07 -------- ---------- ---------- INCREASE/(DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income (loss) .......................... $ 3,397 $ 506 $ 2,949 Net realized gain (loss) .............................. (78,498) 44,419 11,418 Net change in unrealized appreciation (depreciation) .. (180,367) (190,712) 109,004 -------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ......................................... (255,468) (145,787) 123,371 -------- ---------- ---------- FROM DISTRIBUTIONS TO SHAREHOLDERS Net investment income, Class A ........................ (1,303) (760) (2,716) Net investment income, Class C ........................ -- -- -- Net investment income, Class I ........................ (64) -- -- Net realized short-term gains, Class A ................ (3,277) (12,682) -- Net realized short-term gains, Class C ................ (922) (3,802) -- Net realized short-term gains, Class I ................ (78) -- -- Net realized long-term gains, Class A ................. (8,573) (14,354) (898) Net realized long-term gains, Class C ................. (2,412) (4,304) (345) Net realized long-term gains, Class I ................. (203) -- -- -------- ---------- ---------- DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS .................................... (16,832) (35,902) (3,959) -------- ---------- ---------- FROM SHARE TRANSACTIONS: SALE OF SHARES Class A (5,327, 5,251 and 27,157 shares, respectively) 93,863 131,172 699,277 Class C (330, 346 and 4,567 shares, respectively) ..... 5,974 8,390 115,476 Class I (1,034, 5 and 0 shares, respectively) ......... 19,274 100 -- REINVESTMENT OF DISTRIBUTIONS Class A (484, 969 and 111 shares, respectively) ....... 10,413 22,607 2.967 Class C (107, 249 and 9 shares, respectively) ......... 2,357 5,730 223 Class I (16, 0 and 0 shares, respectively) ............ 343 -- -- SHARES REPURCHASED Class A (11,002, 13,553 and 5,153 shares, respectively) (189,457) (334,317) (134,846) Class C (2,498, 2,300 and 740 shares, respectively) ... (42,735) (53,997) (18,380) Class I (102, 0 and 0 shares, respectively) ........... (1,510) -- -- -------- ---------- ---------- INCREASE (DECREASE) IN NET ASSETS FROM SHARE TRANSACTIONS ................................. (101,478) (220,315) 664,717 -------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS. ................ (373,778) (402,004) 784,129 NET ASSETS Beginning of period ................................... 669,813 1,071,817 287,688 -------- ---------- ---------- End of period ......................................... $296,035 $ 669,813 $1,071,817 ======== ========== ========== Accumulated undistributed net investment income (loss) at end of period ..................... $ 2,245 $ 287 $ 471
See Notes to Financial Statements 11 VIRTUS MID-CAP VALUE FUND FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NET NET ASSET NET REALIZED TOTAL DIVIDENDS DISTRIBUTIONS VALUE, INVESTMENT AND FROM FROM NET FROM NET BEGINNING INCOME UNREALIZED INVESTMENT INVESTMENT REALIZED TOTAL OF PERIOD (LOSS)(1) GAIN (LOSS) OPERATIONS INCOME GAINS DISTRIBUTIONS -------------------------------------------------------------------------------------------------------------------------------- CLASS A 4/1/08 to 3/31/09 $22.27 0.15 (9.39) (9.24) (0.06) (0.53) (0.59) 7/1/07 to 3/31/08 27.40 0.05 (4.08) (4.03) (0.03) (1.07) (1.10) 7/1/06 to 6/30/07 21.72 0.18 5.66 5.84 (0.10) (0.06) (0.16) 7/1/05 to 6/30/06 19.63 0.10 2.05 2.15 (0.05) (0.01) (0.06) 7/1/04 to 6/30/05(4) 17.04 0.08 2.55 2.63 (0.04) -- (0.04) 7/1/03 to 6/30/04(4) 12.18 (0.01) 4.88 4.87 (0.01) -- (0.01) CLASS C 4/1/08 to 3/31/09 $21.87 0.01 (9.18) (9.17) -- (0.53) (0.53) 7/1/07 to 3/31/08 27.04 (0.09) (4.01) (4.10) -- (1.07) (1.07) 7/1/06 to 6/30/07 21.53 (0.03) 5.60 5.57 -- (0.06) (0.06) 7/1/05 to 6/30/06 19.54 (0.05) 2.05 2.00 -- (0.01) (0.01) 10/22/04(8) to 6/30/05 17.77 (0.04) 1.84 1.80 (0.03) -- (0.03) CLASS I 4/1/08 to 3/31/09 $22.27 0.20 (9.39) (9.19) (0.11) (0.53) (0.64) 3/10/08(8) to 3/31/08 21.20 --(3) 1.07 1.07 -- -- -- RATIO OF GROSS EXPENSES RATIO OF NET NET NET RATIO OF TO AVERAGE INVESTMENT CHANGE ASSET ASSETS, NET NET ASSETS INCOME IN NET VALUE, END OF EXPENSES TO (BEFORE WAIVERS (LOSS) TO PORTFOLIO ASSET END OF TOTAL PERIOD AVERAGE AND AVERAGE TURNOVER VALUE PERIOD RETURN(2) (IN THOUSANDS) NET ASSETS REIMBURSEMENTS) NET ASSETS RATE ------------------------------------------------------------------------------------------------------------------------------------ CLASS A 4/1/08 to 3/31/09 (9.83) $12.44 (42.59)% $226,815 1.45% 1.45% 0.83% 11% 7/1/07 to 3/31/08 (5.13) 22.27 (14.90)(7) 521,552 1.35(5)(6) 1.42(6) 0.24(6) 14(7) 7/1/06 to 6/30/07 5.68 27.40 26.91 842,524 1.27 1.31 0.68 7 7/1/05 to 6/30/06 2.09 21.72 11.07 187,701 1.25 1.42 0.50 16 7/1/04 to 6/30/05(4) 2.59 19.63 15.39 97,771 1.25 1.65 0.49 9 7/1/03 to 6/30/04(4) 4.86 17.04 40.03 6,404 1.30 2.76 (0.06) 53 CLASS C 4/1/08 to 3/31/09 (9.70) $12.17 (43.01)% $ 57,366 2.19% 2.19% 0.08% 11% 7/1/07 to 3/31/08 (5.17) 21.87 (15.36)(7) 148,156 2.10(5)(6) 2.17(6) (0.50)(6) 14(7) 7/1/06 to 6/30/07 5.51 27.04 25.89 229,293 2.01 2.06 (0.11) 7 7/1/05 to 6/30/06 1.99 21.53 10.26 99,987 2.00 2.17 (0.25) 16 10/22/04(8) to 6/30/05 1.77 19.54 10.13(7) 37,934 2.00(6) 2.29(6) (0.28)(6) 9(7) CLASS I 4/1/08 to 3/31/09 (9.83) $12.44 (42.42)% $ 11,854 1.24% 1.24% 1.21% 11% 3/10/08(8) to 3/31/08 1.07 22.27 5.05(7) 105 1.54(6) 1.54(6) (0.05)(6) 14(7)
(1) Computed using average shares outstanding. (2) Sales charges, where applicable, are not reflected in the total return calculation. (3) Amount is less than $0.005. (4) Due to a reorganization on October 22, 2004, the Mid-Cap Value Fund is the successor of the FMI Sasco Contrarian Value Fund. The Mid-Cap Value Fund Class A treats the past performance of the FMI Sasco Contrarian Value Fund as its own. (5) Represents a blended net operating ratio. (6) Annualized. (7) Not annualized. (8) Inception date. See Notes to Financial Statements 12 and 13 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 1. ORGANIZATION Effective October 1, 2008, the Phoenix Funds became Virtus Mutual Funds, and all of the Funds were renamed to reflect the new Virtus name. On October 20, 2008, the Trusts' names were also updated to reflect the new name. Virtus Equity 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, fourteen funds of the Trust are offered for sale, of which the Virtus Mid-Cap Value Fund (the "Fund") is reported in this annual report. The Fund's investment objective is outlined in the Fund Summary Page. The Fund offers Class A shares, Class C shares and Class I shares. Class A shares are 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 Fund when redeemed; however, a 1% contingent deferred sales charge ("CDSC") may be imposed on certain redemptions made within one year following purchases on which a finder's fee has been paid. The one-year period begins on the last day of the month preceding the month in which the purchase was made. Class C shares are sold with a 1% contingent deferred sales charge, if applicable, if redeemed within one year of purchase. Class I shares are sold without a sales charge. Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class bears different distribution and/or service expenses and has exclusive voting rights with respect to its distribution plan. Class I shares bear no distribution and/or service expenses. Income and other expenses and realized and unrealized gains and losses of the Fund are borne pro rata by the holders of each class of shares. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount 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. A. SECURITY VALUATION: 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. Debt securities are valued on the basis of broker quotations or valuations provided by a pricing service, which utilizes information with respect to recent sales, market transactions in comparable securities, quotations from dealers, and various relationships between securities in determining value. Due to excessive volatility in the current market (please see Note 11 on Market Conditions), valuations developed through pricing techniques may materially vary from the actual amounts realized upon sale of the securities. 14 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 As required, some securities and assets may be valued at fair value as determined in good faith by or under the direction of the Trustees. Certain foreign common stocks may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that foreign markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (generally, the close of the NYSE) that may impact the value of securities traded in these foreign markets. In these cases, information from an external vendor may be utilized to adjust closing market prices of certain foreign common stocks to reflect their fair value. Because the frequency of significant events is not predictable, fair valuation of certain foreign common stocks may occur on a frequent basis. Short-term investments having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market. Investments in underlying money market mutual funds are valued at each fund's closing net asset value. The Fund has adopted the provisions of the Statement of Financial Accounting Standards No. 157 ("SFAS 157"). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, the Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: o Level 1 - quoted prices in active markets for identical securities o Level 2 - prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) o Level 3 - prices determined using significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The following is a summary of the inputs used to value the Fund's net assets as of March 31, 2009. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. ($ reported in thousands) INVESTMENTS IN SECURITIES VALUATION INPUTS MARKET VALUE ----------------------------------------- ------------------------- Level 1 - Quoted Prices $298,060 Level 2 - Significant Observable Inputs -- Level 3 - Significant Unobservable Inputs -- -------- TOTAL $298,060 ======== B. SECURITY TRANSACTIONS AND RELATED INCOME: Security transactions are recorded on the trade date. Dividend income is recorded on the ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Realized gains and losses are determined on the identified cost basis. 15 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 Dividend income is recorded using management's estimate of the income included in distributions received from the REIT investments. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts. C. INCOME TAXES: The Fund is treated as a separate taxable entity. It is the policy of the Fund to comply with the requirements of Subchapter M of the Internal Revenue 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. The Trust 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 they invest. FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. Management has analyzed the Fund's tax positions and has concluded that no provision for income tax is required in the Fund's financial statements. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. D. DISTRIBUTIONS TO SHAREHOLDERS: Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences may include the treatment of non-taxable dividends, market premium and discount, non-deductible expenses, expiring capital loss carryovers, foreign currency gain or loss, gain or loss on futures contracts, partnerships, operating losses and losses deferred due to wash sales. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to capital paid in on shares of beneficial interest. E. EXPENSES: Expenses incurred by the Trust with respect to more than one fund are allocated in proportion to the net assets of each fund, except where allocation of direct expense to each fund or an alternative allocation method can be more appropriately made. F. FOREIGN CURRENCY TRANSLATION: Foreign securities and other assets and liabilities are valued using 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 Trust does not 16 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 isolate that portion of the results of operations arising from changes in exchange rates or from fluctuations which arise due to changes in the market prices of securities. 3. INVESTMENT ADVISORY FEE AND RELATED PARTY TRANSACTIONS ($ REPORTED IN THOUSANDS EXCEPT AS NOTED) At end of business December 31, 2008, Virtus Investment Partners, Inc. ("Virtus") spun off from The Phoenix Companies, Inc. ("PNX"), into an independent publicly traded company which through its affiliates provides asset management and related services to individuals and institutions. Virtus Investment Advisers, Inc. ("VIA," the "Adviser," formerly known as Phoenix Investment Counsel, Inc.) and VP Distributors, Inc. ("VP Distributors," formerly known as Phoenix Equity Planning Corporation) are indirect wholly-owned subsidiaries of Virtus. Due to the spin-off, the asset management subsidiaries have changed their names to reflect the Virtus brand. As compensation for its services to the Trust, the Adviser is entitled to a fee based upon the annual rate of 0.75% as a percentage of the average daily net assets of the Fund. Effective August 23, 2007, the Adviser may recapture expenses waived or reimbursed under arrangements previously in effect within three years following the end of the fiscal year in which such waiver or reimbursement occurred. The 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. All or a portion of the following Adviser reimbursed expenses may be recaptured by the end of the fiscal year ended as follows: 2011 TOTAL ---- ----- $385 $385 The Adviser manages the Fund's investment program and general operations of the Fund, including oversight of the Fund's subadviser, Sasco Capital, Inc. ("Sasco"). As distributor of the Fund's shares, VP Distributors has advised the Funds that it retained net selling commissions and deferred sales charges for the fiscal year (the "period") ended March 31, 2009, as follows: CLASS A CLASS A CLASS C NET SELLING DEFERRED DEFERRED COMMISSIONS SALES CHARGES SALES CHARGES ----------- ------------- ------------- $15 $6 $9 The Fund pays VP Distributors distribution and/or service fees at the following annual rates as a percentage of the average daily net assets of each respective Class. CLASS A CLASS C ------- ------- 0.25% 1.00% 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 net asset values per share at the time of the exchange. On exchanges with share classes that carry a contingent deferred sales charge, the CDSC schedule of the original shares purchased continues to apply. VP Distributors serves as the Administrator to the Trust. For its services, which include financial agent services, VP Distributors receives an administration fee at an annual rate of 17 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 0.09% of the first $5 billion, 0.08% on the next $10 billion, and 0.07% over $15 billion of the average net assets across all non-money market Virtus Mutual Funds and certain other funds. For the period ended March 31, 2009, the Fund incurred administration fees totaling $421. VP Distributors also serves as the Trust's transfer agent. For the period ended March 31, 2009, transfer agent fees were $1,431 as reported in the Statement of Operations. At March 31, 2009, Virtus and its affiliates, the retirement plans of Virtus and its affiliates, and Virtus affiliated Funds held shares of the Fund which may be redeemed at any time that aggregated the following: AGGREGATE NET ASSET SHARES VALUE ---------- --------- Class A 283,176 $3,523 Class C 1,164* 14 * Shares held by Harris Bankcorp, Inc., a minority investor in Virtus. 4. PURCHASES AND SALES OF SECURITIES ($ REPORTED IN THOUSANDS) Purchases and sales of investment securities (excluding U.S. Government and agency securities and short-term securities) during the period ended March 31, 2009, were as follows: PURCHASES SALES --------- --------- $55,024 $169,711 There were no purchases or sales of long-term U.S. Government and agency securities during the period ended March 31, 2009. 5. 10% SHAREHOLDERS At March 31, 2009, the Fund had one omnibus shareholder account which amounted to 12% of the shares outstanding of the Fund. 6. CREDIT RISK AND ASSET CONCENTRATIONS 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 the Fund's ability to repatriate such amounts. The Fund may invest a high percentage of its assets in specific sectors of the market in its pursuit of a greater investment return. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors. 7. INDEMNIFICATIONS Under the Fund's organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, the Fund enters into contracts that contain a variety of indemnifications. The 18 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 Fund's maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these arrangements. 8. REGULATORY EXAMS Federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Virtus (and, prior to the spin-off described in Note 3, PNX) and its subsidiaries (collectively "the Company") with securities and other laws and regulations affecting their registered products. There are currently no such matters which the Company believes will be material to these financial statements. 9. FEDERAL INCOME TAX INFORMATION ($ REPORTED IN THOUSANDS) At March 31, 2009, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows. NET UNREALIZED FEDERAL UNREALIZED UNREALIZED APPRECIATION TAX COST APPRECIATION (DEPRECIATION) (DEPRECIATION) -------- ------------ --------------- -------------- $533,331 $12,035 $(247,306) $(235,271) The Fund has capital loss carryovers which may be used to offset future capital gains as follows. EXPIRATION YEAR ---------------------- 2017 TOTAL ------ ------ $4,364 $4,364 The Fund may not realize the benefit of these losses to the extent the Fund does not realize gains on investments prior to the expiration of these capital loss carryovers. Under current tax law, foreign currency and capital losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal period ended March 31, 2009, the Fund deferred post-October capital losses of $74,134. The components of distributable earnings on a tax basis (excluding unrealized appreciation (depreciation) which is disclosed in the first table above) consist of undistributed ordinary income of $2,245 and undistributed long-term capital gains of $0. The differences between the book and tax basis components of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions reported in the Statements of Changes in Net Assets, if any, are reported as ordinary income for federal tax purposes. 10. RECLASSIFICATION OF CAPITAL ACCOUNTS ($ REPORTED IN THOUSANDS) For financial reporting purposes, book basis capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Permanent reclassifications can arise from differing treatment of certain income and gain transactions, nondeductible current year net operating losses, expiring capital loss carryovers and investments in passive 19 VIRTUS MID-CAP VALUE FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2009 foreign investment companies. The reclassifications have no impact on the net assets or net asset value of the Fund. As of March 31, 2009, the Fund recorded reclassifications to increase (decrease) the accounts as listed below: CAPITAL PAID IN ON SHARES OF UNDISTRIBUTED ACCUMULATED BENEFICIAL NET INVESTMENT NET REALIZED INTEREST INCOME (LOSS) GAIN (LOSS) ------------- -------------- ------------ $5,350 $(73) $(5,277) 11. RECENTLY ISSUED ACCOUNTING STANDARDS In April 2009, FASB issued FASB Staff Position No. 157-4, DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY ("FSP 157-4"). FSP 157-4 is effective for fiscal years and interim periods ending after June 15, 2009. FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 (see Note 2A), when the volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 requires entities to describe the inputs used in valuation techniques used to measure fair value and changes in inputs over the period. FSP 157-4 expands the three-level hierarchy disclosure and the level three-roll forward disclosure for each major security type as described in paragraph 19 of FAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Management is currently evaluating the impact the implementation of FSP 157-4 will have on the Funds' financial statement disclosures, if any. In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161") was issued and is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why a fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect a fund's results of operations and financial position. Management is currently evaluating the impact of SFAS 161 on financial statement disclosures, if any. 12. MARKET CONDITIONS Events in the financial sector have resulted in an unusually high degree of volatility in the financial markets and the net asset value of many mutual funds, including the Funds. Such events include, but are not limited to, the seizure of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation by U.S. banking regulators, the bankruptcy filing of Lehman Brothers and sale of Merrill Lynch to Bank of America, and the government bailout of AIG. These companies represent financial institutions with which the Fund may conduct business and/or whose securities are or may be held within the Fund. The potential investment of the Fund's investments in these issuers, and the financial sector in general, as reflected in the Fund's Schedule of Investments, exposes investors to the negative (or positive) performance resulting from these and other events. 20 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [GRAPHIC OMITTED] PRICEWATERHOUSECOOPERS To the Board of Trustees of Virtus Equity Trust and Shareholders of Virtus Mid-Cap Value Fund In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Virtus Mid-Cap Value Fund (formerly Phoenix Mid-Cap Value Fund, a series of Virtus Equity Trust (formerly Phoenix Equity Trust), hereafter referred to as the "Fund") at March 31, 2009, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2009 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Philadelphia, PA May 22, 2009 21 VIRTUS MID-CAP VALUE FUND TAX INFORMATION NOTICE (UNAUDITED) MARCH 31, 2009 -------------------------------------------------------------------------------- For the fiscal year ended March 31, 2009, the Fund makes the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends ("QDI") to qualify for the lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by the Fund which qualifies for the dividends received deduction ("DRD") for corporate shareholders. The actual percentage of QDI and DRD for the calendar year will be designated in year-end tax statements. The Fund designates the amounts below, or if subsequently different, as long-term capital gains dividends ("LTCG") ($ reported in Thousands). QDI DRD LTCG --- --- ---- 100% 100% $ -- -------------------------------------------------------------------------------- 22 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) The Board of Trustees of the Trust, along with the Boards of Trustees of the other trusts in the Virtus Mutual Funds family of funds (collectively, the "Board"), are responsible for determining whether to approve the establishment and continuation of each investment advisory and sub-advisory agreement (each, an "Agreement") applicable to the Virtus Mutual Funds (collectively, the "Funds"). At meetings held on November 18 - 20, 2008, the Board, including a majority of the independent Trustees, considered and approved the continuation of each Agreement, as further discussed below. In approving each Agreement, the Board determined that the continued retention of the applicable adviser or subadviser was in the best interests of the Funds and their shareholders. The Trustees considered each Fund separately, though they also collectively took into account those interests that all the Funds had in common. In reaching their decisions, the Board considered information furnished throughout the year at regular Board meetings as well as information prepared specifically in connection with the annual review process. During the review process, the Board received assistance and advice from, and met separately with, independent legal counsel. The Board's determination contemplated a number of factors that the Trustees believed, in light of the legal advice furnished to them as well as their own business judgment, to be relevant. Some of the factors that the Board considered are described below, although the Trustees did not identify any particular information or factor as controlling but instead considered the Agreements in the totality of the circumstances. Each individual Trustee may have evaluated the information presented differently, giving different weights to different factors. NATURE, EXTENT AND QUALITY OF SERVICES. The majority of the Funds(1) 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, Virtus Investment Advisers, Inc. ("VIA") is responsible 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 Agreement with VIA, therefore, the Trustees considered VIA's process for supervising and managing the Funds' subadvisers, including (a) VIA's ability to select and monitor the subadvisers; (b) VIA's ability to provide the services necessary to monitor the subadvisers' compliance with the Funds' respective investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VIA'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: (d) the experience, capability and integrity of VIA's management and other personnel; (e) the financial position of VIA; (f) the quality of VIA's own regulatory and legal compliance policies, procedures and systems; (g) the nature, extent and quality of administrative and other services provided by VIA to the Funds; and (h) VIA's supervision of the Funds' other service providers. Finally, the Board also noted the extent of benefits ---------- (1) DURING THE PERIOD BEING REPORTED, THE ONLY FUNDS THAT DID NOT EMPLOY A MANAGER OF MANAGERS STRUCTURE WERE VIRTUS GROWTH & INCOME FUND, WHICH IS A SERIES OF VIRTUS EQUITY TRUST; AND VIRTUS WEALTH ACCUMULATOR FUND, VIRTUS WEALTH BUILDER FUND, VIRTUS DIVERSIFIER FUND AND VIRTUS ALTERNATIVES DIVERSIFIER FUND, WHICH ARE SERIES OF VIRTUS OPPORTUNITIES TRUST. VIA ACTED AS THE ADVISER FOR THESE FUNDS WITHOUT EMPLOYING A SUBADVISER, AND THE BOARD CONSIDERED THE VIA AGREEMENT WITH RESPECT TO THESE FUNDS IN THAT CONTEXT. 23 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) that are provided to Fund shareholders as a result of being part of the family of Virtus Mutual Funds, including the right to exchange investments between the same class of Funds without a sales charge, the ability to reinvest Fund dividends into other Funds and the right to combine holdings in other Funds to obtain a reduced sales charge. With respect to the sub-advisory 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. In considering the renewal of the sub-advisory Agreements, therefore, the Board considered each subadviser's investment management process, including (a) the experience, capability and integrity of the subadviser's management and other personnel committed by the subadviser to its respective Fund(s); (b) the financial position of the subadviser; (c) the quality and commitment of the subadviser's regulatory and legal compliance policies, procedures and systems; and (d) the subadviser's brokerage and trading practices. After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services provided by VIA and each subadviser were reasonable and beneficial to the Funds and their shareholders. INVESTMENT PERFORMANCE. The Board placed significant emphasis on its consideration of the investment performance of the Funds, in view of its importance to shareholders, and evaluated Fund performance in the context of the special considerations that a manager-of-managers structure requires. The Board also considered that VIA continued to be proactive in seeking to replace and/or add subadvisers as necessary, with a view toward improving Fund performance over the long term. While consideration was given to performance reports and discussions at Board meetings throughout the year, particular attention in assessing such performance was given to a report (the "Lipper Report") for the Funds prepared by Lipper Inc. ("Lipper") and furnished specifically for the contract renewal process. (Lipper is an independent provider of investment company data retained by the Funds for this purpose.) The Lipper Report presented each Fund's short-term and long-term performance relative to a peer group of other mutual funds and relevant benchmarks, as selected by Lipper. The Board considered the composition of each peer group, selection criteria and the appropriateness of the benchmark used for each Fund. The Board also assessed each Fund's performance in the context of its review of the fees and expenses of each Fund as well as VIA's profitability. The Board noted that while many of the Funds had generally performed in line with their respective benchmarks and peer groups during the periods measured, some of the Funds had underperformed in comparison with their respective benchmarks and/or peer groups. The Board noted that certain of the Funds' underperformance was slight, and that some of the Funds underperforming their benchmarks and/or peer groups for a given period had outperformed such benchmarks and/or peer groups during other periods. Where significant, the Board extensively considered the performance of the underperforming Funds and the reasons for the performance issues. The Board discussed the possible reasons for the underperformance with VIA, and spoke with representatives from VIA regarding plans to monitor and address performance issues during the coming year. 24 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) The Board ultimately determined, within the context of all of its considerations in connection with the Agreements, that the Funds' overall investment performance was reasonable, and concluded that VIA's and each subadviser's performance record and process in managing the Funds merited approval of the continuation of the Agreements. However, the Board noted that certain Funds' performance would continue to be closely monitored and it expected that if performance over a longer period of time did not improve the adviser would recommend that the subadviser be replaced in a timely manner. PROFITABILITY. The Board also considered the level of profits realized by VIA and its affiliates in connection with the operation of the Funds. In this regard, the Board reviewed the analysis presented regarding the overall profitability of VIA for its management of the Virtus Mutual Funds, as well as its profits and those of its affiliates for managing and providing other services to each Fund. In addition to the fees paid to VIA and its affiliates, the Trustees considered any other benefits derived by VIA or its affiliates from their relationship with the Funds. Specific attention was paid to the methodology used to allocate costs to each Fund, in recognition of the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. In this regard, the Board noted that the allocations appeared reasonable, and concluded that the profitability to VIA from each Fund was reasonable in light of the quality of all services rendered to the Funds by VIA and its affiliates. The Board did not separately review profitability information for each subadviser, noting that the sub-advisory fees are paid by VIA rather than the Funds, so that Fund shareholders are not directly impacted by those fees. MANAGEMENT FEES AND TOTAL EXPENSES. In evaluating the management fees and total expenses of each Fund, the Board reviewed information provided by VIA and comparisons to other funds in each Fund's peer group as presented in the Lipper Report. The Board noted that certain Funds had higher gross expenses when expressed as a percentage of net assets than those of such Funds' larger peers, which the Trustees considered in the context of these Funds' expectations for future growth. Finally, the Board also noted that several of the Funds had fee waivers and/or expense caps in place to limit the total expenses incurred by the Funds and their shareholders. Based upon the information presented by VIA and Lipper, the Trustees then determined, in the exercise of their business judgment, that the management fees charged by VIA and the total expenses of the Funds were reasonable, both on an absolute basis and in comparison with the fees and expenses of other funds in each Fund's peer group and the industry at large. The Board did not receive comparative fee information relating specifically to sub-advisory fees, in light of the fact that the sub-advisory fees are paid by VIA and not by the Funds, so that Fund shareholders are not directly impacted by those fees. 25 CONSIDERATION OF ADVISORY AND SUB-ADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES (UNAUDITED) (CONTINUED) ECONOMIES OF SCALE. The Board noted that the management fees for several of the Funds included breakpoints based on assets under management, and that fee waivers and/or expense caps were also in place for several of the Funds. The Board determined that VIA and the Funds likely would achieve certain economies of scale, particularly in relationship to certain fixed costs, and that shareholders of the Funds would have an opportunity to benefit from these economies of scale. In considering the sub-advisory Agreements, the Board also considered the existence of any economies of scale and whether they would be passed along to the Funds' shareholders, but noted that any such economies would likely be generated at the Fund level rather than at the subadviser level. 26 FUND MANAGEMENT TABLES (UNAUDITED) Information pertaining to the trustees and officers of the Trust as of March 31, 2009 is set forth below. The statement of additional information (SAI) includes additional information about the trustees and is available without charge, upon request, by calling (800) 243-4361. The address of each individual, unless otherwise noted, is 100 Pearl Street, Hartford, CT 06103-4506. There is no stated term of office for trustees of the Trust.
INDEPENDENT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ Leroy Keith, Jr. Managing Director, Almanac Capital Management (commodities business) (2007-present). Partner, YOB: 1939 Stonington Partners, Inc. (private equity firm) (2001-2007). Director/Trustee, Evergreen Funds (88 Elected: 1993 portfolios). 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Philip R. McLoughlin Partner, Cross Pond Partners, LLC (2006-Present). Director, World Trust Fund. Chairman and Trustee, YOB: 1946 The Phoenix Edge Series Fund (2003-present). Director, DTF Tax-Free Income Fund, Inc., Duff & Phelps Elected: 1993 Utility and Corporate Bond Trust, Inc. and DNP Select Income Fund Inc. Managing Director, SeaCap, 51 Funds Asset Management Fund I LP. ------------------------------------------------------------------------------------------------------------------------------------ Geraldine M. McNamara Retired. Managing Director, U.S. Trust Company of New York (private bank) (1982-2006). YOB: 1951 Elected: 2001 51 Funds ------------------------------------------------------------------------------------------------------------------------------------ James M. Oates Managing Director, Wydown Group (consulting firm) (1994-present). Chairman, Hudson Castle Group, Inc. YOB: 1946 (formerly IBEX Capital Markets, Inc.) (financial services) (1997-2006). Director, Stifel Financial. Elected: 1993 Chairman and Trustee, John Hancock Trust (93 portfolios) and John Hancock Funds II (74 portfolios). 49 Funds Non-Executive Chairman, Hudson Castle Group, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Richard E. Segerson Managing Director, Northway Management Company (1998-present). YOB: 1946 Elected: 1998 49 Funds ------------------------------------------------------------------------------------------------------------------------------------ Ferdinand L.J. Verdonck Retired. Director, Galapagos N.V. (biotechnology). Mr. Verdonck is also a director of several YOB: 1942 non-U.S. companies. Elected: 2004 49 Funds ------------------------------------------------------------------------------------------------------------------------------------
27 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED) INTERESTED TRUSTEE -------------------------------------------------------------------------------- The individual listed below is an "interested person" of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder.
------------------------------------------------------------------------------------------------------------------------------------ NAME YEAR OF BIRTH, YEAR ELECTED AND PRINCIPAL OCCUPATION(S) NUMBER OF FUNDS DURING PAST 5 YEARS AND OVERSEEN DIRECTORSHIPS OF OTHER PUBLIC COMPANIES ------------------------------------------------------------------------------------------------------------------------------------ George R. Aylward(1) Director, President and Chief Executive Officer (2008-present), Director and President (2006-2008), YOB: 1964 Chief Operating Officer (2004-2006), Vice President, Finance (2001-2002), Virtus Investment Partners, Elected: 2006 Inc. and/or certain of its subsidiaries. Senior Executive Vice President and President, Asset 51 Funds Management (2007-2008), Senior Vice President and Chief Operating Officer, Asset Management (2004-2007), Vice President and Chief of Staff (2001-2004), The Phoenix Companies, Inc. Various senior officer and directorship positions with Phoenix affiliates (2005-2008). President (2006-present), Executive Vice President (2004-2006), the Virtus Mutual Funds Family. Chairman, President and Chief Executive Officer, The Zweig Fund Inc. and The Zweig Total Return Fund Inc. (2006-present). ------------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Aylward is an "interested person," as defined in the Investment Company Act of 1940, by reason of his relationship with Virtus Investment Partners, Inc. and/or its affiliates. 28 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Nancy G. Curtiss Senior Vice President Executive Vice President, Head of Operations (since 2009), Senior Vice YOB: 1952 since 2006. President, Operations (2008-2009), Vice President, Head of Asset Management Operations (2007-2008), Vice President (2003-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Assistant Treasurer (2001-2009), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Ms. Curtiss is also Treasurer of various other investment companies within the Virtus Mutual Funds Complex (1994-present). ------------------------------------------------------------------------------------------------------------------------------------ Francis G. Waltman Senior Vice President Executive Vice President, Head of Product Management (since 2009), YOB: 1962 since 2008. Senior Vice President, Asset Management Product Development (2008-2009), Senior Vice President, Asset Management Product Development (2005-2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Director (since 2008), Director and President (2006-2007), VP Distributors, Inc. (f/k/a Phoenix Equity Planning Corporation). Director and Senior Vice President (since 2008), Senior Vice President (2006-2007), Virtus Investment Advisers, Inc. ------------------------------------------------------------------------------------------------------------------------------------ Marc Baltuch Vice President and Chief Compliance Officer, Zweig-DiMenna Associates LLC (1989-present). c/o Zweig-DiMenna Chief Compliance Officer Vice President, The Zweig Total Return Fund, Inc. (2004-present). Vice Associates, LLC since 2004. President, The Zweig Fund, Inc. (2004-present). President and Director 900 Third Avenue of Watermark Securities, Inc. (1991-present). Assistant Secretary, New York, NY 10022 Gotham Advisors Inc. (1990-2005). YOB: 1945 ------------------------------------------------------------------------------------------------------------------------------------ W. Patrick Bradley Chief Financial Officer Senior Vice President, Fund Administration (since 2009), Vice President, YOB: 1972 and Treasurer since 2006. Fund Administration (2007-present), Second Vice President, Fund Control & Tax (2004-2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries. Vice President, Chief Financial Officer, Treasurer and Principal Accounting Officer (2006-present), Assistant Treasurer (2004-2006), The Phoenix Edge Series Fund. Chief Financial Officer and Treasurer (2005-present), Assistant Treasurer (2004-2006), certain funds within the Virtus Mutual Funds Family. ------------------------------------------------------------------------------------------------------------------------------------
29 FUND MANAGEMENT TABLES (UNAUDITED) (CONTINUED)
OFFICERS OF THE TRUST WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------------------ POSITION(S) HELD WITH NAME, ADDRESS AND TRUST AND LENGTH OF PRINCIPAL OCCUPATION(S) YEAR OF BIRTH TIME SERVED DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ Kevin J. Carr Vice President, Senior Vice President (since 2009), Counsel and Secretary (2008-present) YOB: 1954 Chief Legal Officer, and Vice President (2008-2009), Virtus Investment Partners, Inc. and/or Counsel and Secretary certain of its subsidiaries (2008-present). Vice President and Counsel, since 2005. Phoenix Life Insurance Company (2005-2008). Compliance Officer of Investments and Counsel, Travelers Life & Annuity Company (January 2005-May 2005). Assistant General Counsel and certain other positions, The Hartford Financial Services Group (1995-2005). ------------------------------------------------------------------------------------------------------------------------------------
30 VIRTUS EQUITY TRUST 101 Munson Street Greenfield, MA 01301-9668 TRUSTEES George R. Aylward Leroy Keith, Jr. Philip R. McLoughlin, Chairman Geraldine M. McNamara James M. Oates Richard E. Segerson Ferdinand L.J. Verdonck OFFICERS George R. Aylward, President Nancy G. Curtiss, Senior Vice President Francis G. Waltman, Senior Vice President Marc Baltuch, Vice President and Chief Compliance Officer W. Patrick Bradley, Chief Financial Officer and Treasurer Kevin J. Carr, Vice President, Chief Legal Officer, Counsel and Secretary INVESTMENT ADVISER Virtus Investment Advisers, Inc. 100 Pearl Street Hartford, CT 06103-4506 PRINCIPAL UNDERWRITER VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 TRANSFER AGENT VP Distributors, Inc. 100 Pearl Street Hartford, CT 06103-4506 CUSTODIAN State Street Bank and Trust Company P.O. Box 5501 Boston, MA 02206-5501 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 2001 Market Street Philadelphia, PA 19103-7042 HOW TO CONTACT US Mutual Fund Services 1-800-243-1574 Advisor Consulting Group 1-800-243-4361 Telephone Orders 1-800-367-5877 Text Telephone 1-800-243-1926 Web site VIRTUS.COM -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- THIS PAGE INTENTIONALLY BLANK. ------------- PRSRT STD U.S. POSTAGE PAID LANCASTER, PA PERMIT 1793 ------------- [GRAPHIC OMITTED] VIRTUS MUTUAL FUNDS c/o State Street Bank and Trust Company P.O. Box 8301 Boston, MA 02266-8301 For more information about Virtus mutual funds, please call your financial representative, contact us at 1-800-243-1574 or VIRTUS.COM. 8014 4-09 ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (c) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics described in Item 2(b) of the instructions for completion of Form N-CSR. (d) The registrant has not granted any waivers, during the period covered by this report, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of the instructions for completion of this Item. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant's Board of Trustees has determined that the Registrant has an "audit committee financial expert" serving on its Audit Committee. (a)(2) Each of James M. Oates and Richard E. Segerson has been determined by the Registrant to possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an "audit committee financial expert." Mr. Oates and Mr. Segerson are each "independent" trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR. (a)(3) Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Audit Fees ---------- (a) The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 are $76,800, $366,250 and $226,942, respectively. Audit-Related Fees ------------------ (b) The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item for fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 are $0, 9,593 and $52,301, respectively. Tax Fees -------- (c) The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 are $13,250, $34,464 and $96,643, respectively. "Tax Fees" are those primarily associated with review of the Trust's tax provision and qualification as a regulated investment company (RIC) in connection with audits of the Trust's financial statement, review of year-end distributions by the Fund to avoid excise tax for the Trust, periodic discussion with management on tax issues affecting the Trust, and reviewing and signing the Fund's federal income tax returns. All Other Fees -------------- (d) The aggregate fees billed for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are for fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 are $0, $0 and $0, respectively. (e)(1) Disclose the audit committee's pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. The Virtus Equity Trust (the "Fund") Board has adopted policies and procedures with regard to the pre-approval of services provided by PwC. Audit, audit-related and tax compliance services provided to the Fund on an annual basis require specific pre-approval by the Board. As noted above, the Board must also approve other non-audit services provided to the Fund and those non-audit services provided to the Fund's Affiliated Service Providers that relate directly to the operations and financial reporting of the Fund. Certain of these non-audit services that the Board believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent auditors may be approved by the Board without consideration on a specific case-by-case basis ("general pre-approval"). The Audit Committee has determined that Mr. James M. Oates, Chair of the Audit Committee, may provide pre-approval for such services that meet the above requirements in the event such approval is sought between regularly scheduled meetings. In any event, the Board is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: (b) Not applicable for fiscal year ended June 30, 2007, 100% for nine month period ended March 31, 2008 and 100% for fiscal year ended March 31, 2009 (c) 100% for fiscal year ended June 30, 2007, 100% for nine month period ended March 31, 2008 and 100% for fiscal year ended March 31, 2009 (d) Not applicable for fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than fifty percent. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the fiscal year ended June 30, 2007, nine month period ended March 31, 2008 and fiscal year ended March 31, 2009 are $908,053, $678,907 and $1,731,894, respectively. (h) The registrant's audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. 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 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 and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal quarter of 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. EXHIBITS. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (a)(3) Not applicable. (b) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. 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 Equity Trust (formerly, Phoenix Equity Trust) ----------------------------------------------------- By (Signature and Title)* /s/ George R. Aylward ------------------------------------------------------- George R. Aylward, President (principal executive officer) Date June 5, 2009 ---------------------------------------------------------------------------- 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 June 5, 2009 ---------------------------------------------------------------------------- By (Signature and Title)* /s/ W. Patrick Bradley ------------------------------------------------------- W. Patrick Bradley, Chief Financial Officer and Treasurer (principal financial officer) Date June 5, 2009 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.