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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-22906
Virtus Alternative Solutions Trust
(Exact name of registrant as specified in charter)
101 Munson Street
Greenfield, MA 01301
(Address of principal executive offices) (Zip code)
Jennifer Fromm, Esq.
Vice President, Chief Legal Officer, Counsel and Secretary for Registrant
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: October 31
Date of reporting period: October 31, 2015
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. § 3507.
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Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
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ANNUAL REPORT
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Virtus Alternative Income Solution Fund
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Virtus Alternative Inflation Solution Fund
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Virtus Alternative Total Solution Fund
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Virtus Credit Opportunities Fund
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Virtus Multi-Strategy Target Return Fund
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Virtus Select MLP and Energy Fund
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Virtus Strategic Income Fund |
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Proxy Voting Procedures and Voting Record (Form N-PX)
The subadvisers vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Board of Trustees of the Trust (“Trustees”, or the “Board”). You may obtain a description of these procedures, along with information regarding how the Funds voted proxies during the most recent 12-month period ended June 30, free of charge, by calling toll-free 1-800-243-1574. This information is also available through the Securities and Exchange Commission’s (the “SEC”) website at http://www.sec.gov.
Form N-Q Information
The Trust files a complete schedule of portfolio holdings for each Fund with the SEC for the first and third quarters of each fiscal year 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 presented in this book unless preceded or accompanied by an effective prospectus which includes information concerning the sales charge, each Fund’s record and other pertinent information.
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To My Fellow Shareholders of Virtus Mutual Funds:
I am pleased to present this annual report that reviews the performance of your fund for the twelve months ended October 31, 2015. |
During this period, global equity markets were challenged by falling oil prices, China’s economic slowdown, Greece’s debt crisis, and the growing likelihood of an interest rate hike by the Federal Reserve (the “Fed”). U.S. equity indices were down sharply in August and September, but rebounded in October to finish in positive territory. For the twelve months ended October 31, 2015, the large-cap S&P 500® Index and Dow Jones Industrial AverageSM gained 5.20% and 4.06%, respectively, while the technology-heavy NASDAQ Composite Index® was up 10.39%. By comparison, international equities underperformed, particularly emerging markets, which declined 14.53%, as measured by the MSCI Emerging Markets Index (net dividends).
Against this backdrop, U.S. Treasuries remained an attractive “safe haven” among global investors. The bellwether 10-year U.S. Treasury yield declined from 2.35% at October 31, 2014 to 2.16% at October 31, 2015. Fixed income assets experienced slight losses in anticipation of the Fed’s stated intention to raise interest rates before the end of 2015. The Barclays U.S. Aggregate Bond Index, which tracks Treasuries and other investment-grade debt securities, gained 1.96% for the twelve-month period ended October 31, 2015, while non-investment grade bonds underperformed, with the Barclays U.S. Corporate High Yield Bond Index down 1.94% for the same period.
The strength of the global economy is likely to remain a concern for the markets in the months ahead, and investors will watch with great interest the actions of the Fed and other global central banks. The U.S. economy’s growth over the second and third quarters of 2015 — including stronger jobs, housing, and consumer spending data — gives investors reason for optimism. Future market direction will be determined largely by the ability of corporations to continue to produce robust earnings.
Market uncertainty is an ever-present reminder of the importance of portfolio diversification. While diversification cannot guarantee a profit or prevent loss, owning a variety of asset classes may cushion your portfolio against inevitable market fluctuations. Incorporating alternative investments has been a time-tested approach to reduce portfolio volatility and generate more consistent results through market cycles. Your financial advisor can help you ensure that your portfolio is adequately diversified across asset classes and investment strategies.
As always, thank you for entrusting Virtus with your assets. Should you have questions about your account or require assistance, please visit our website at www.Virtus.com, or call our customer service team at 1-800-243-1574. We appreciate your business and remain committed to your long-term financial success.
Sincerely,
George R. Aylward
President, Virtus Mutual Funds
November 2015
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.
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
Disclosure of Fund Expenses
For the six-month period of May 1, 2015 to October 31, 2015
We believe it is important for you to understand the impact of costs on your investment. All mutual funds have operating expenses. As a shareholder of a Virtus Alternative Solutions Trust Fund (each, a “Fund”) you may incur two types of costs: (1) transaction costs, including sales charges on purchases of Class A shares and contingent deferred sales charges on Class A and Class C shares; and (2) ongoing costs, including investment advisory fees, distribution and service fees, and other expenses. Class I and Class R6 shares are sold without sales charges. For further information regarding applicable sales charges, see Note 1 in the Notes to Financial Statements. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. These examples are based on an investment of $1,000 invested from May 1, 2015 through October 31, 2015 and held for the entire period. The following Expense Table illustrates your 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 given for your Fund under the heading “Expenses Paid During Period” to estimate the expenses you paid on your account during the 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 these transactional costs were included, your costs would have been higher. The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
Expense Table | ||||||||||||
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Ending |
| Annualized Expense Ratio* | Expenses Paid During Period** | |||||
Virtus Alternative Income Solution Fund | ||||||||||||
Actual | ||||||||||||
Class A | $1,000.00 | $922.79 | 2.55% | $12.36 | ||||||||
Class C | 1,000.00 | 919.07 | 3.31 | 16.01 | ||||||||
Class I | 1,000.00 | 925.05 | 2.30 | 11.16 | ||||||||
Hypothetical (5% return before expenses) | ||||||||||||
Class A | $1,000.00 | $1,012.35 | 2.55% | $12.93 | ||||||||
Class C | 1,000.00 | 1,008.52 | 3.31 | 16.76 | ||||||||
Class I | 1,000.00 | 1,013.61 | 2.30 | 11.67 | ||||||||
Virtus Alternative Inflation Solution Fund | ||||||||||||
Actual | ||||||||||||
Class A | $1,000.00 | $923.46 | 2.56% | $12.41 | ||||||||
Class C | 1,000.00 | 920.00 | 3.31 | 16.02 | ||||||||
Class I | 1,000.00 | 925.52 | 2.31 | 11.21 | ||||||||
Hypothetical (5% return before expenses) | ||||||||||||
Class A | $1,000.00 | $1,012.30 | 2.56% | $12.98 | ||||||||
Class C | 1,000.00 | 1,008.52 | 3.31 | 16.76 | ||||||||
Class I | 1,000.00 | 1,013.56 | 2.31 | 11.72 | ||||||||
Virtus Alternative Total Solution Fund | ||||||||||||
Actual | ||||||||||||
Class A | $1,000.00 | $958.50 | 3.02% | $14.91 | ||||||||
Class C | 1,000.00 | 954.27 | 3.77 | 18.57 | ||||||||
Class I | 1,000.00 | 959.57 | 2.79 | 13.78 | ||||||||
Class R6 | 1,000.00 | 959.61 | 2.82 | 13.93 | ||||||||
Hypothetical (5% return before expenses) | ||||||||||||
Class A | $1,000.00 | $1,009.98 | 3.02% | $15.30 | ||||||||
Class C | 1,000.00 | 1,006.20 | 3.77 | 19.06 | ||||||||
Class I | 1,000.00 | 1,011.14 | 2.79 | 14.14 | ||||||||
Class R6 | 1,000.00 | 1,010.99 | 2.82 | 14.29 | ||||||||
Virtus Credit Opportunities Fund*** | ||||||||||||
Actual | ||||||||||||
Class A | $1,000.00 | $987.13 | 1.35% | $5.29 | ||||||||
Class C | 1,000.00 | 983.81 | 2.10 | 8.22 | ||||||||
Class I | 1,000.00 | 987.94 | 1.10 | 4.31 | ||||||||
Class R6 | 1,000.00 | 987.94 | 1.04 | 4.08 | ||||||||
Hypothetical (5% return before expenses) | ||||||||||||
Class A | $1,000.00 | $1,018.40 | 1.35% | $6.87 | ||||||||
Class C | 1,000.00 | 1,014.62 | 2.10 | 10.66 | ||||||||
Class I | 1,000.00 | 1,019.66 | 1.10 | 5.60 | ||||||||
Class R6 | 1,000.00 | 1,019.96 | 1.04 | 5.30 | ||||||||
Virtus Multi-Strategy Target Return Fund**** | ||||||||||||
Actual | ||||||||||||
Class A | $1,000.00 | $1,002.00 | 1.80% | $5.04 | ||||||||
Class C | 1,000.00 | 1,000.00 | 2.55 | 7.13 | ||||||||
Class I | 1,000.00 | 1,003.00 | 1.55 | 4.34 | ||||||||
Hypothetical (5% return before expenses) | ||||||||||||
Class A | $1,000.00 | $1,016.13 | 1.80% | $9.15 | ||||||||
Class C | 1,000.00 | 1,012.35 | 2.55 | 12.93 | ||||||||
Class I | 1,000.00 | 1,017.39 | 1.55 | 7.88 |
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
Disclosure of Fund Expenses
For the six-month period of May 1, 2015 to October 31, 2015
Expense Table |
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Ending |
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Annualized | | Expenses Paid During Period** | | |||||
Virtus Select MLP and Energy Fund*****
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Actual | ||||||||||||||
Class A | $1,000.00 | $979.00 | 1.55% | $2.14 | ||||||||||
Class C | 1,000.00 | 978.00 | 2.30 | 3.18 | ||||||||||
Class I | 1,000.00 | 979.00 | 1.30 | 1.80 | ||||||||||
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,017.39 | 1.55% | $7.88 | ||||||||||
Class C | 1,000.00 | 1,013.61 | 2.30 | 11.67 | ||||||||||
Class I | 1,000.00 | 1,018.65 | 1.30 | 6.61 | ||||||||||
Virtus Strategic Income Fund
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Actual | ||||||||||||||
Class A | $1,000.00 | $989.56 | 1.39% | $6.97 | ||||||||||
Class C | 1,000.00 | 984.80 | 2.13 | 10.66 | ||||||||||
Class I | 1,000.00 | 989.83 | 1.14 | 5.72 | ||||||||||
Hypothetical (5% return before expenses) |
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Class A | $1,000.00 | $1,018.20 | 1.39% | $7.07 | ||||||||||
Class C | 1,000.00 | 1,014.47 | 2.13 | 10.82 | ||||||||||
Class I | 1,000.00 | 1,019.46 | 1.14 | 5.80 |
* | Annualized expense ratios include dividend expense on securities sold short and interest expense securities sold short and borrowings. |
** | Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (184) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one half-year period. |
*** | June 10, 2015 is the date the Fund started accruing expenses. Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (144 for actual and 184 for hypothetical) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one half-year period. |
**** | July 22, 2015 is the date the Fund started accruing expenses. Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (102 for actual and 184 for hypothetical) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one half-year period. |
***** | September 11, 2015 is the date the Fund started accruing expenses. Expenses are equal to the relevant Fund’s annualized expense ratio, which is net of waived fees and reimbursed expenses, if applicable, multiplied by the average account value over the period, multiplied by the number of days (51 for actual and 184 for hypothetical) expenses were accrued in the most recent fiscal half-year, then divided by 365 to reflect the one half-year period. |
For Funds which may invest in other funds, the annualized expense ratios noted above do not reflect fees and expenses associated with the underlying funds. If such fees and expenses had been included, the expenses would have been higher.
You can find more information about the Funds’ expenses in the Financial Statements section that follows. For additional information on operating expenses and other shareholder costs, refer to the prospectus.
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ADR (American Depositary Receipt)
Represents shares of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a U.S. bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares.
Alerian MLP Index
A composite of the 50 most prominent energy master limited partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. The index, which is calculated using a float-adjusted, capitalization-weighted methodology, is disseminated real-time on a price-return basis (NYSE: AMZ) and on a total-return basis (NYSE:AMZX). The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
50% Barclays High-Yield Index/50% Credit Suisse Leveraged Loan Index
An index that is derived from a combination of the Barclays U.S. Corporate High Yield Bond Index and the Credit Suisse Leveraged Loan Index. The Barclays U.S. Corporate High Yield Bond Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below. Credit Suisse Leveraged Loan index is an index designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. Total return of the index is the sum of three components: principal, interest, and reinvestment return. The cumulative return assumes that coupon payments are reinvested into the index at the beginning of each period. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Barclays U.S. Aggregate Bond Index
An index that measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Barclays U.S. Corporate High Yield Bond Index
An index that measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index
An index that includes all publicly issued, U.S. Treasury inflation-protected securities that have at least one year remaining to maturity, are rated investment grade, and have $250 million or more of outstanding face value. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Barclays U.S. 10 year Breakeven Inflation Benchmark Index
An index that provides exposure to U.S. Breakeven Inflation by taking a long position in On-The-Run (OTR) 10 Year U.S. TIPS and a short position (facilitated by a repo agreement) in nominal comparative duration U.S. Treasury bonds. The index also aims to minimize exposure to real yields by scaling the position of the nominal comparative duration Treasury bonds by a ratio equal to the duration of the OTR TIPS to its corresponding nominal comparative Treasury bond. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
Bloomberg Commodity Index (BCOM)
An index that is designed to be a highly liquid and diversified benchmark for commodities investments. It provides broad-based exposure to commodities as an asset class, since no single commodity or commodity sector dominates the Index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison to non-diversified commodity baskets. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
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KEY INVESTMENT TERMS (Continued)
BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index
An index that is based on the assumed purchase of a synthetic instrument having 3 months to maturity and with a coupon equal to the closing quote for 3-Month LIBOR. That issue is sold the following day (priced at a yield equal to the current day closing 3-Month LIBOR rate) and is rolled into a new 3-Month instrument. The index, therefore, will always have a constant maturity equal to exactly 3 months. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Chicago Board Options Exchange (CBOE) Volatility Index® (VIX® Index)
An index that shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500® Index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX® Index is a widely used measure of market risk and is often referred to as the “investor fear gauge.” The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
Collateralized Loan Obligation (CLO)
A security backed by a pool of debt, often low-rated corporate loans.
Commodity Trading Advisor (CTA)
An individual or organization that is retained by a fund or other client to provide advice and services related to trading in commodity interests, such as futures contracts, commodity options and/or swaps. CTAs are regulated by the U.S. federal government through registration with the Commodity Futures Trading Commission (CFTC).
Dow Jones Industrial AverageSM
A stock market index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market. While the index attempts to be representative of the U.S. economy as a whole, it is somewhat heavily weighted toward industrials. It is a price-weighted average, which means that the price movement of each stock is weighted equally regardless of its market capitalization. The index is unmanaged, its returns do not reflect any fees, expenses or sales charges, and it is not available for direct investment.
EURO STOXX 50® Index
A stock index of Eurozone stocks designed by STOXX Ltd., an index provider owned by Deutsche Börse Group and SIX Group. According to STOXX Ltd., its goal is “to provide a blue-chip representation of Supersector leaders in the Eurozone.” It is made up of fifty of the largest and most liquid stocks. The index futures and options on the EURO STOXX 50® Index, traded on the Eurex exchanges, are among the most liquid such products in Europe and the world.
European Central Bank (the “ECB”)
The regulatory body that is responsible for conducting monetary policy for the euro area. The ECB was established as the core of the Eurosystem and the European System of Central Banks (ESCB). The ESCB comprises the ECB and the National Central Banks (NCBs) of all 17 European Union Member States, whether or not they have adopted the euro currency.
Equity Long/Short Strategy
A type of hedge fund strategy which combines a core group of long stock positions with short sales of stock or stock index options and futures.
Event-Driven Strategy
A type of investment strategy which seeks to exploit pricing inefficiencies that often occur just before or after a corporate event, such as a merger, spinoff, or bankruptcy. (For additional information regarding the Funds’ use of event-driven strategies, if any, please consult their prospectuses.)
Exchange–Traded Fund (ETF)
A registered open-end mutual fund that trades like a common stock on a stock exchange.
Federal Home Loan Bank (FHLB)
One of 11 regional banks that comprise the Federal Home Loan Bank System (FHLBank System). The FHLBank System provides stable, on-demand, low-cost funding to American financial institutions (not individuals) for home mortgage loans, small business, rural, agricultural, and economic development lending.
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KEY INVESTMENT TERMS (Continued)
Federal Reserve (the “Fed”)
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.
FTSE NAREIT All Equity REITs Index
A free-float market capitalization-weighted index containing all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property that also meet minimum size and liquidity criteria. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Germany Index
Referred to as the Deutscher Aktienindex or DAX, the leading index of the German stock exchange. Prices are taken from the electronic Xetra trading system. According to Deutsche Börse, the operator of Xetra, DAX measures the performance of the 30 largest German companies in terms of market capitalization and trading volume. It is considered to be the German equivalent of the Dow Jones Industrial AverageSM in the U.S., and because of its small selection it does not necessarily represent the vitality of the economy as whole. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Global Macro Strategy
A type of investment strategy which seeks to opportunistically invest across financial markets, currencies, national borders and commodities, based primarily upon overall economic and political views of various countries (a macroeconomic approach). (For additional information regarding the Funds’ use of global macro strategies, if any, please consult their prospectuses.)
Gross Domestic Product (GDP)
The market value of all officially recognized final goods and services produced within a country in a given period.
HFRX Fixed Income Credit Index
An index that includes strategies with exposure to credit across a broad continuum of credit sub-strategies, including corporate, sovereign, distressed, convertible, asset backed, capital structure arbitrage, multi-strategy, and other relative value and event driven sub-strategies. The investment thesis across all strategies is predicated on realization of a valuation discrepancy between the related credit instruments. Strategies may also include and utilize equity securities, credit derivatives, government fixed income, commodities, currencies, or other hybrid securities. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
HFRX Global Hedge Fund Index
An index designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies, including but not limited to, convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Hong Kong Index
Referred to as the Hang Seng Index, the most widely quoted gauge of the Hong Kong stock market. The index is free float-adjusted and market capitalization-weighted, and it includes the largest and most liquid stocks listed on the Main Board of the Stock Exchange of Hong Kong. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Intercontinental Exchange (ICE)
A leading global network of regulated exchanges and clearing houses for financial and commodity markets.
iShares®
Certain exchange-traded funds, unaffiliated with the Funds or their service providers, in which the Funds may invest.
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KEY INVESTMENT TERMS (Continued)
Japan Index
Referred to as the Nikkei Stock Average or Nikkei 225, the leading index of Japanese stocks. Calculated using a method developed by Nikkei Inc., it is a price-weighted index (the unit is yen) comprised of 225 common stocks traded on the Tokyo Stock Exchange. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
London Interbank Offered Rate (LIBOR)
A benchmark rate that some of the world’s leading banks charge each other for short-term loans.
Master Limited Partnership (MLP)
Investment which combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. To be classified as an MLP, a partnership must derive most of its cash flows from real estate, natural resources and commodities.
Merger Arbitrage
An investment strategy which involves the simultaneous purchase and sale of the stocks of companies involved in mergers and takeovers, seeking to profit from the price inefficiencies that typically occur shortly before or after such events. (For additional information regarding the Funds’ use of merger arbitrage, if any, please consult their prospectuses.)
MSCI All Country World Index
A market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets. The index is calculated on a total return basis with gross dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
MSCI EAFE®Index (net)
The MSCI EAFE® Index (net) is a free float-adjusted, market capitalization-weighted index that measures developed foreign market equity performance, excluding the U.S. and Canada. The index is calculated on a total return basis with gross dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
MSCI Emerging Markets Index (net)
The MSCI Emerging Markets Index (net) is a free float-adjusted, market capitalization-weighted index designed to measure equity market performance in the global emerging markets. The index is calculated on a total return basis with gross dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
NASDAQ Composite® Index
A stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partner interests) listed on the NASDAQ stock market. The composition of the NASDAQ Composite is heavily weighted towards information technology companies. Unlike other market indexes, the NASDAQ composite is not limited to companies that have U.S. headquarters. The index is unmanaged, its returns do not reflect any fees, expenses or sales charges and it is not available for direct investment.
Organization of the Petroleum Exporting Countries (OPEC)
An organization intended to coordinate and unify petroleum policies among member countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry. Originally organized in September 1960 with 5 member countries, the organization currently has 12 member countries.
Over–the–Counter (OTC)
Trading that is done directly between two parties, without any supervision of an exchange.
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KEY INVESTMENT TERMS (Continued)
Payment–in–Kind Security (PIK)
A bond which pays interest in the form of additional bonds, or preferred stock which pays dividends in the form of additional preferred stock.
Quantitative Easing (QE)
An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
Real Estate Investment Trust (REIT)
A publicly-traded company that owns, develops and operates income-producing real estate such as apartments, office buildings, hotels, shopping centers and other commercial properties.
Russell 2000®Index
A market capitalization-weighted index that measures the performance of the smallest 2,000 companies in the Russell Universe, which comprises the 3,000 largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
S&P 500® Index
The S&P 500® Index is a free-float market adjusted, market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses or sales charges, and it is not available for direct investment.
S&P GSCI®
Formerly the Goldman Sachs Commodity Index, a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index was originally developed by Goldman Sachs. In 2007, ownership transferred to Standard & Poor’s, who currently own and publish it. Futures of the S&P GSCI® use a multiple of 250. The index contains a much higher exposure to energy than other commodity price indices such as the Dow Jones-UBS Commodity Index. The index is unmanaged, its returns do not reflect any fees, expenses or sales charges, and it is not available for direct investment.
Spain Index
Referred to as the IBEX 35 Index, the leading index of Spanish securities. It is a market capitalization-weighted index (the unit is euro) comprised of the 35 most liquid securities traded on the Spanish Stock Market. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Standard & Poor’s Depositary Receipt (SPDR)
Certain exchange-traded funds, unaffiliated with the Funds or their service providers, in which the Funds may invest. SPDRs are designed to track the value of the S&P 500®Index. SPDRs trade on the American Stock Exchange under the symbol SPY. One SPDR unit is valued at approximately one-tenth of the value of the S&P 500® Index. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.
STOXX® Europe 600 Index
An index with a fixed number of 600 components representing large, mid and small capitalization companies across 18 countries of the European region: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The index is unmanaged, its returns do not reflect any fees, expenses or sales charges, and it is not available for direct investment.
8
Table of Contents
KEY INVESTMENT TERMS (Continued)
Treasury Yield
The return on investment, expressed as a percentage, on the U.S. government’s debt obligations (bonds, notes and bills). The Treasury yield is considered a bellwether of the U.S. economy; the higher the yields on 10-, 20- and 30-year Treasuries, the better the economic outlook.
U.S. Treasury Federal Funds Rate
The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is generally only applicable to the most creditworthy institutions when they borrow and lend overnight funds to each other. The federal funds rate is one of the most influential interest rates in the U.S. economy, since it affects monetary and financial conditions, which in turn have a bearing on key aspects of the broad economy including employment, growth and inflation.
Yankee Bonds
A bond denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks and corporations. According to the Securities Act of 1933, as amended, these bonds must first be registered with the U.S. Securities and Exchange Commission (SEC) before they can be sold. Yankee bonds are often issued in tranches and each offering can be as large as $1 billion.
Yield Curve
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
9
Table of Contents
Alternative Income Solution Fund Fund Summary
| Ticker Symbols: Class A: VAIAX Class C: VAICX Class I : VAIIX |
¢ | The Fund is non-diversified and has an investment objective of maximizing current income while considering capital appreciation. |
¢ | For the fiscal period November 1, 2014 through October 31, 2015, the Fund’s Class A shares at NAV returned -7.82%, Class C shares returned -8.48%, and Class I shares returned -7.48%. For the same period, the HFRX Fixed Income Credit Index, which serves as the broad-based and style-specific benchmark index appropriate for comparison, returned -2.98%. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above.
How did the markets perform during the Fund’s fiscal year?
¢ | The fiscal year saw tremendous global equity volatility. Investors worried about slowing global growth, the health of the Chinese economy, the Fed’s interest rate path, Greece’s ongoing discussions with creditors, lower commodity prices, and slower corporate earnings growth. The S&P 500® Index gained a respectable 5.2% for the year, but the broad domestic economy index was outshined by the technology-heavy NASDAQ Composite®Index, which gained 10.4%. The NASDAQ topped 5,000 for the first time in 15 years in the first quarter of 2015 and exceeded its prior closing record in July (hitting 5,219 on July 20) before retracing to close the year at 5,054. In aggregate, developed global equities were flat for the year with the MSCI EAFE®Index (net) returning -0.1%. Emerging markets, as measured by the MSCI Emerging Markets Index (net), were the laggard at -14.5% as export-oriented emerging markets were affected by the strong U.S. dollar and falling commodity prices. Chinese policy actions, in particular during the third quarter, were central to the global equity sell-off during that period as investors worried about the possibility of a hard landing. However, Chinese A-shares gained 43.1% on the year despite a significant sell-off from June to August. The Beijing authorities heavily intervened with unprecedented selling restrictions on stocks, including initial public offerings. Furthermore, |
the Chinese central bank unexpectedly devalued the yuan on August 11, resulting in the currency having its biggest single-day drop since 1994. After the devaluation, the Chinese government took additional steps to support the yuan and their crashing stock market. The CBOE Volatility Index (“VIX”) closed the fiscal year at 15.1, slightly up from 14.7 at the beginning of the year. However, this masked the sharp rise in equity volatility when the fear gauge touched 40.7 on August 24 at the height of the market turmoil and closed above 20.0 every single day in September. |
¢ | U.S. fixed income had a deceivingly stable year as U.S. 10-year Treasury yields started at 2.34%, finished at 2.14%, and averaged 2.13% during the year. However, yields ranged from a low of 1.64% in January to a high of 2.48% in June. The Fed officially ended its bond purchasing program on October 29, 2014, just before the start of the 2015 fiscal year, which resulted in a de facto tightening, and market participants spent the next year analyzing every Fed announcement and speech under a microscope. Interest rate-sensitive fixed income securities had mixed results over the year. While the Barclays U.S. Aggregate Bond Index returned a modest 2.0%, the Barclays U.S. High Yield Corporate Bond Index fell 1.9%. High yield bond prices came under extreme pressure over the summer as global growth concerns spread across all sectors and commodity prices, in particular energy, continued to slide. The year’s most significant event in the global fixed income markets occurred in January 2015 when the European Central Bank’s Mario Draghi committed to a quantitative easing program worth at least €1 trillion to counter the threat of a deflationary spiral in Europe. German 10-year bonds plunged to record lows and by the second quarter they were flirting with negative interest rates, reaching a record low of 0.05% on April 17. German 10-year bonds closed the year at 0.52%, down from 0.84% at the start of the year. Days before the January ECB announcement, the Swiss National Bank also took unexpected action, removing its currency cap of 1.2 Swiss francs to the euro. This move was a surprise for institutional and retail currency traders alike, leading to a violent uptick in foreign exchange market volatility that caused severe pain across a number of investors and to broker dealers. The U.S. |
dollar strengthened against a basket of currencies over the year. |
¢ | In real assets, the year saw a continuation of the commodity rout that began in 2014. Pulled down by the 42.1% fall in WTI Crude, the Bloomberg Commodity Index fell 25.7% and the more energy-heavy S&P GSCI® fell by 37.9%. The rout in oil came on the back of the strength of the U.S. dollar, weaker growth in emerging markets, the deflationary effects of the Chinese equity market rout, as well as high supply due to OPEC’s decision towards the end of 2014 to not cut oil production. Master limited partnerships (MLPs) finished the year down 30.1%, which included a -22.1% return in the third quarter 2015, their weakest quarter ever. While MLPs received stability from continued lower interest rates, they could not overcome the substantial drop in crude oil and the more commodity-sensitive MLP sectors such as exploration & production and field services were the weakest performers. REITs, on the other hand, finished a volatile year with the FTSE NAREIT All Equity REITs Index up 5.4% as real estate fundamentals remained strong. REITs are correlated to the market expectation of future interest rates and were negatively impacted by rising global yields during the course of the year and the expectation of a Fed rate hike. |
What factors affected the Fund’s performance during its fiscal year?
¢ | The Fund navigated through a difficult market environment in alternative credit and income investments and ended the fiscal year with a modest loss. Positive performance from REITs was not sufficient to offset losses from other parts of the Fund, specifically a large drawdown in MLPs which were adversely affected by the volatility in the price of oil. |
¢ | The market environment for credit investments was particularly challenging over the past year. Credit spreads widened during the year, and the shipping and commodity sectors, especially energy, came under pressure. Additionally, lower rated credits underperformed higher rated ones. As a result, the credit-oriented subadvisers (at approximately 62% of the portfolio) posted negative returns. Interest rate and credit hedges are used selectively within several of the Fund’s portfolios. The U.S.-oriented credit |
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
10
Table of Contents
Alternative Income Solution Fund (Continued)
subadviser was conservatively positioned with a diversified allocation, and mitigated losses by trading around high yield short positions over the course of the year. They were, however, negatively impacted by holdings in energy-related positions and lower-quality issuers. The event-oriented credit subadviser maintained its high conviction positions and saw a number of events play out as anticipated. Prices of positions in the energy and telecom sectors declined with the market, but the subadviser remained constructive on those companies’ underlying fundamentals. The emerging market debt subadviser was negatively affected in the first half of the fiscal year when emerging markets came under pressure due to uncertainties regarding Greece, elections in Argentina and global growth concerns, and declining commodity prices. Their performance rebounded strongly in the second part of the fiscal year. The emerging market debt portfolio is comprised of corporate U.S. dollar bonds or non-U.S. dollar bonds that are predominantly hedged back to the U.S. dollar. |
¢ | The yield-oriented real asset component, at an approximate 28% portfolio weight, was the largest detractor for the fiscal year, driven by the decline in MLPs. The MLP subadviser continued to manage the portfolio with a structural bias towards midstream MLPs which have less direct commodity risk, and they opportunistically hedged MLP, equity market, and interest rate risk. They also had good security selection. However, believing that the market was oversold, the subadviser took off the MLP hedge that had been on the portfolio for most of the fiscal year early in the third quarter and became fully invested. Thus, the losses suffered in this portfolio were commensurate with those of the MLP market. REITs were a positive contributor for the fiscal year and the subadviser outperformed the market by overweighting apartments and regional malls. The income-oriented equity subadviser had a negative return and underperformed due to stock selection and an overweight in emerging markets. |
¢ | Over the course of the fiscal year, allocations to the various alternative income strategies were fairly consistent. In the third quarter, on the belief that MLPs had oversold, the interim target was raised by 2% (from 15% to 17%). |
The allocation to REITs was moved to 3% above the long-term target of 10%. Exposure to global equity income strategies remained at 10%. The Fund had a 22% interim target to event-oriented credit, 22% to U.S.-oriented credit, and 15% in emerging market debt. No changes were made to the subadviser roster during the fiscal year.
The preceding information is the opinion of portfolio management. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
There is no guarantee that the Fund will meet its objective.
Alternative investments are not suitable for all investors.
Alternative Investments: Investments in liquid alternative mutual funds expose investors to risks that have the potential to result in losses. These strategies involve risks that may not be present in more traditional (e.g., equity or fixed income) mutual funds, including the risks associated with derivatives, short sales, and leverage, which may increase volatility. Alternative investments are not suitable for all investors.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Non-Diversified: The fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
Prospectus: For additional information on risks, please see the fund’s prospectus
Alternative Income Solution Fund
| ||
The following table presents asset allocations within certain sectors and as a percentage of total investments net of securities sold short as of October 31, 2015.
| ||
Corporate Bonds | 42% | |
Real Estate Investment Trusts | 15% | |
Master Limited Partnerships | 13% | |
Common Stocks | 10% | |
Loan Agreements | 10% | |
Foreign Government Securities | 3% | |
Asset-Backed Securities | 1% | |
Municipal Bonds | 1% | |
Other (includes short-term investments and securities sold short) | 5% | |
| ||
Total | 100% | |
| ||
| ||
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
11
Table of Contents
Alternative Income Solution Fund (Continued)
Total Returns1 for periods ended 10/31/15
| ||||||||||||
1 year | Since Inception | Inception Date | ||||||||||
Class A Shares at NAV2
|
|
-7.82
|
|
|
-4.09
|
|
|
4/23/14
|
| |||
Class A Shares at POP3,4
|
|
-13.12
|
|
|
-7.75
|
|
|
4/23/14
|
| |||
Class C Shares at NAV2 and with CDSC4
|
|
-8.48
|
|
|
-4.81
|
|
|
4/23/14
|
| |||
Class I Shares at NAV
|
|
-7.48
|
|
|
-3.81
|
|
|
4/23/14
|
| |||
HFRX Fixed Income Credit Index
|
|
-2.98
|
|
|
-3.195
|
|
|
—
|
| |||
Fund Expense Ratios6: A Shares: Gross 3.98%, Net 2.71%; C Shares: Gross 4.73%, Net 3.46%; I Shares: Gross 3.73%, Net 2.46%.
|
|
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 gains 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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5 The since inception index returns are from the Fund’s inception date.
6 The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015 as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 29, 2016. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on April 23, 2014 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
12
Table of Contents
Alternative Inflation Solution Fund Fund Summary
| Ticker Symbols: Class A: VSAIX Class C: VSICX Class I : VIASX |
¢ | The Fund is non-diversified and has an investment objective of total return that exceeds the rate of inflation. |
¢ | For the fiscal period November 1, 2014 through October 31, 2015, the Fund’s Class A shares at NAV returned -7.96%, Class C shares at NAV returned -8.64%~ and Class I shares returned -7.65%. For the same period, the Barclays U.S. TIPS Index, a broad-based fixed income index, returned -1.42% and the Barclays U.S. 10 Year Breakeven Inflation Benchmark Index, which is the Fund’s style-specific benchmark appropriate for comparison, returned -5.22%. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above.
How did the markets perform during the Fund’s fiscal year?
¢ | The fiscal year saw tremendous global equity volatility. Investors worried about slowing global growth, the health of the Chinese economy, the Fed’s interest rate path, Greece’s ongoing discussions with creditors, lower commodity prices, and slower corporate earnings growth. The S&P 500®Index gained a respectable 5.2% for the year, but the broad domestic economy index was outshined by the technology-heavy NASDAQ Composite®Index, which gained 10.4%. The NASDAQ topped 5,000 for the first time in 15 years in the first quarter of 2015 and exceeded its prior closing record in July (hitting 5,219 on July 20) before retracing to close the year at 5,054. In aggregate, developed global equities were flat for the year with the MSCI EAFE®Index (net) returning -0.1%. Emerging markets, as measured by the MSCI Emerging Markets Index (net), were the laggard at - 14.5% as export-oriented emerging markets were affected by the strong U.S. dollar and falling commodity prices. Chinese policy actions, in particular during the third quarter, were central to the global equity sell-off during that period as investors worried about the possibility of a hard landing. However, Chinese A-shares gained 43.1% on the year despite a significant sell-off from June to August. The Beijing authorities heavily intervened with unprecedented selling restrictions on stocks, including initial public offerings. Furthermore, the Chinese central bank unexpectedly devalued the yuan on August 11, resulting in the currency having its biggest single-day drop since 1994. After the devaluation, the Chinese government took additional steps to support the yuan and their crashing stock market. The CBOE Volatility Index (“VIX”) closed the fiscal year at 15.1, slightly up from 14.7 at the |
beginning of the year. However, this masked the sharp rise in equity volatility when the fear gauge touched 40.7 on August 24 at the height of the market turmoil and closed above 20.0 every single day in September. |
¢ | U.S. fixed income had a deceivingly stable year as U.S. 10-year Treasury yields started at 2.34%, finished at 2.14%, and averaged 2.13% during the year. However, yields ranged from a low of 1.64% in January to a high of 2.48% in June. The Fed officially ended its bond purchasing program on October 29, 2014, just before the start of the 2015 fiscal year, which resulted in a de facto tightening, and market participants spent the next year analyzing every Fed announcement and speech under a microscope. Interest rate-sensitive fixed income securities had mixed results over the year. While the Barclays U.S. Aggregate Bond Index returned a modest 2.0%, the Barclays U.S. High Yield Corporate Bond Index fell 1.9%. High yield bond prices came under extreme pressure over the summer as global growth concerns spread across all sectors and commodity prices, in particular energy, continued to slide. The year’s most significant event in the global fixed income markets occurred in January 2015 when the European Central Bank’s Mario Draghi committed to a quantitative easing program worth at least €1 trillion to counter the threat of a deflationary spiral in Europe. German 10-year bonds plunged to record lows and by the second quarter they were flirting with negative interest rates, reaching a record low of 0.05% on April 17. German 10-year bonds closed the year at 0.52%, down from 0.84% at the start of the year. Days before the January ECB announcement, the Swiss National Bank also took unexpected action, removing its currency cap of 1.2 Swiss francs to the euro. This move was a surprise for institutional and retail currency traders alike, leading to a violent uptick in foreign exchange market volatility that caused severe pain across a number of investors and to broker dealers. The U.S. dollar strengthened against a basket of currencies over the year. |
¢ | In real assets, the year saw a continuation of the commodity rout that began in 2014. Pulled down by the 42.1% fall in WTI Crude, the Bloomberg Commodity Index fell 25.7% and the more energy-heavy S&P GSCI®fell by 37.9%. The rout in oil came on the back of the strength of the U.S. dollar, weaker growth in emerging markets, the deflationary effects of the Chinese equity market rout, as well as high supply due to OPEC’s decision towards the end of 2014 to not cut oil production. Master limited partnerships (MLPs) finished the year down 30.1%, which included a -22.1% return in the third quarter 2015, their weakest quarter ever. While MLPs received stability from continued lower interest rates, they could not |
overcome the substantial drop in crude oil and the more commodity-sensitive MLP sectors such as exploration & production and field services were the weakest performers. REITs, on the other hand, finished a volatile year with the FTSE NAREIT All Equity REITs Index up 5.4% as real estate fundamentals remained strong. REITs are correlated to the market expectation of future interest rates and were negatively impacted by rising global yields during the course of the year and the expectation of a Fed rate hike. |
What factors affected the Fund’s performance during its fiscal year?
¢ | The Fund navigated through a difficult market environment in alternative investments and ended the fiscal year with a modest loss. Positive performance from REITs and infrastructure equities was not sufficient to offset losses from other parts of the Fund, specifically large drawdowns in commodities and MLPs. |
¢ | The yield-oriented real asset component was the largest detractor for the fiscal year, driven by the decline in MLPs. The MLP subadviser continued to manage the portfolio with a structural bias towards midstream MLPs, which have less direct commodity risk, and they opportunistically hedged MLP, equity market, and interest rate risk. They also had good security selection. However, believing that the market was oversold, the subadviser took off the MLP hedge that had been on the portfolio for most of the fiscal year early in the third quarter and became fully invested. Thus, the losses suffered in this portfolio were commensurate with those of the MLP market. REITs were a positive contributor for the fiscal year, and the subadviser outperformed the market by overweighting apartments and regional malls. The infrastructure subadviser had a positive return for the fiscal year and outperformed due to positive security selection and an overweight in Italian infrastructure equities. The commodity portion of the Fund’s portfolio, consisting of exposure to the Bloomberg Commodity Index, also had losses as all five major commodity sectors were negative. |
¢ | The market environment for credit investments was particularly challenging over the past year. Credit spreads widened during the year, and the shipping and commodity sectors, especially energy, came under pressure. Additionally, lower rated credits underperformed higher rated ones. As a result, the credit-oriented subadviser (at approximately 20% of the portfolio) posted slight negative returns. The U.S.-oriented credit subadviser was conservatively positioned with a diversified allocation, and mitigated losses by trading around high yield |
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
13
Table of Contents
Alternative Inflation Solution Fund (Continued)
short positions over the course of the year. They were, however, negatively impacted by holdings in energy-related positions and lower-quality issuers. The global inflation-linked subadviser’s performance (approximately 20% of the Fund’s portfolio) was negative for the fiscal year as inflation expectations declined. However, they outperformed their respective benchmark through positive security selection focused on the short end of the yield curve, which is beneficial in a rising interest rate environment. |
¢ | Over the course of the fiscal year, allocations to the various alternative strategies were fairly consistent. In the third quarter, on the belief that MLPs had oversold, the interim target was raised back to the long-term target of 20% (although actual exposure has been near this long-term target). The allocation to REITs was moved to 2% above the long-term target of 15% and exposure was lowered to infrastructure equities (from 15% to 13%). No changes were made to the subadviser roster during the fiscal year. |
The preceding information is the opinion of portfolio management. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
There is no guarantee that the Fund will meet its objective.
Alternative investments are not suitable for all investors.
Alternative Investments: Investments in liquid alternative mutual funds expose investors to risks
that have the potential to result in losses. These strategies involve risks that may not be present in more traditional (e.g., equity or fixed income) mutual funds, including the risks associated with derivatives, short sales, and leverage, which may increase volatility. Alternative investments are not suitable for all investors.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Non-Diversified: The fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
High Yield-High Risk Fixed Income Securities:
There is a greater level of credit risk and price
volatility involved with high yield securities than investment grade securities.
Inflation-Linked: Inflation-linked securities will react differently from other fixed income securities to changes in interest rates. Generally, the value of an inflation-linked security will fall when real interest rates rise and will rise when real interest rates fall.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Alternative Inflation Solution Fund
| ||
The following table presents asset allocations within certain sectors and as a percentage of total investments net of securities sold short as of October 31, 2015.
| ||
U.S. Government Securities | 22% | |
Real Estate Investment Trusts | 21% | |
Common Stocks | 18% | |
Master Limited Partnerships | 15% | |
Corporate Bonds | 12% | |
Loan Agreements | 6% | |
Commodity Linked Notes | 2% | |
Municipal Bonds | 1% | |
Other (includes short-term investments and securities sold short) | 3% | |
| ||
Total | 100% | |
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
14
Table of Contents
Alternative Inflation Solution Fund (Continued)
Total Returns1 for period ended 10/31/15 | ||||||||||||
1 year
| Since Inception
| Inception Date
| ||||||||||
Class A Shares at NAV2
|
|
-7.96%
|
|
|
-4.63%
|
|
|
4/23/14
|
| |||
Class A Shares at POP3,4
|
|
-13.26
|
|
|
-8.27
|
|
|
4/23/14
|
| |||
Class C Shares at NAV2 and with CDSC4
|
|
-8.64
|
|
|
-5.34
|
|
|
4/23/14
|
| |||
Class I Shares at NAV
|
|
-7.65
|
|
|
-4.35
|
|
|
4/23/14
|
| |||
Barclays U.S. TIPS Index
|
|
-1.42
|
|
|
-0.095
|
|
|
—
|
| |||
Barclays U.S. 10 Year Breakeven Inflation Benchmark Index
|
|
-5.22
|
|
|
-5.365
|
|
|
—
|
| |||
Fund Expense Ratios6: A Shares: Gross 4.24%, Net 2.73%; C Shares: Gross 4.99%, Net 3.48%, I Shares: Gross 3.99%, Net 2.48%.
|
|
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 gains 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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C Shares within the first year are 1% and 0% thereafter.
5 The since inception index returns are from the Fund’s inception date.
6 The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015, as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 29, 2016. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on April 23, 2014 (inception date of the Fund), for Class A, Class C and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
15
Table of Contents
Alternative Total Solution Fund Fund Summary
| Ticker Symbols: Class A: VATAX Class C: VATCX Class I : VATIX Class R6 :VATRX |
¢ | The Fund is non-diversified and has an investment objective of long-term capital appreciation through investments that have a low correlation to traditional asset classes. |
¢ | For the fiscal period November 1, 2014 through October 31, 2015, the Fund’s Class A shares at NAV returned -3.07%, Class C shares returned -3.78%, and Class I shares returned -2.83% for the fiscal period November 19, 2014 (inception date) through October 31, 2015. The Fund’s Class R6 shares at NAV returned -2.35%*. For the full fiscal period, the HFRX Global Hedge Fund Index, which serves as the broad-based index and style-specific benchmark appropriate for comparison, returned -2.05%. |
* Returns less than 1 year are not annualized. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. |
How did markets perform during the Fund’s fiscal year?
¢ | The fiscal year saw tremendous global equity volatility. Investors worried about slowing global growth, the health of the Chinese economy, the Fed’s interest rate path, Greece’s ongoing discussions with creditors, lower commodity prices, and slower corporate earnings growth. The S&P 500®Index gained a respectable 5.2% for the year, but the broad domestic economy index was outshined by the technology-heavy NASDAQ Composite® Index, which gained 10.4%. The NASDAQ topped 5,000 for the first time in 15 years in the first quarter of 2015 and exceeded its prior closing record in July (hitting 5,219 on July 20) before retracing to close the year at 5,054. In aggregate, developed global equities were flat for the year with the MSCI EAFE® Index (net) returning -0.1%. Emerging markets, as measured by the MSCI Emerging Markets Index (net), were the laggard at -14.5% as export-oriented emerging markets were affected by the strong U.S. dollar and falling commodity prices. Chinese policy actions, in particular during the third quarter, were central to the global equity sell-off during that period as investors worried about the possibility of a hard landing. However, Chinese A-shares |
gained 43.1% on the year despite a significant sell-off from June to August. The Beijing authorities heavily intervened with unprecedented selling restrictions on stocks, including initial public offerings. Furthermore, the Chinese central bank unexpectedly devalued the yuan on August 11, resulting in the currency having its biggest single-day drop since 1994. After the devaluation, the Chinese government took additional steps to support the yuan and their crashing stock market. The CBOE Volatility Index (“VIX”) closed the fiscal year at 15.1, slightly up from 14.7 at the beginning of the year. However, this masked the sharp rise in equity volatility when the fear gauge touched 40.7 on August 24 at the height of the market turmoil and closed above 20.0 every single day in September. |
¢ | U.S. fixed income had a deceivingly stable year as U.S. 10-year Treasury yields started at 2.34%, finished at 2.14%, and averaged 2.13% during the year. However, yields ranged from a low of 1.64% in January to a high of 2.48% in June. The Fed officially ended its bond purchasing program on October 29, 2014, just before the start of the 2015 fiscal year, which resulted in a de facto tightening, and market participants spent the next year analyzing every Fed announcement and speech under a microscope. Interest rate-sensitive fixed income securities had mixed results over the year. While the Barclays U.S. Aggregate Bond Index returned a modest 2.0%, the Barclays U.S. High Yield Corporate Bond Index fell 1.9%. High yield bond prices came under extreme pressure over the summer as global growth concerns spread across all sectors and commodity prices, in particular energy, continued to slide. The year’s most significant event in the global fixed income markets occurred in January 2015 when the European Central Bank’s Mario Draghi committed to a quantitative easing program worth at least €1 trillion to counter the threat of a deflationary spiral in Europe. German 10-year bonds plunged to record lows and by the second quarter they were flirting with negative interest rates, reaching a record low of 0.05% on April 17. German 10-year bonds closed the year at 0.52%, down from 0.84% at the start of the year. Days before the January ECB announcement, the Swiss National Bank also took unexpected action, removing its currency cap of 1.2 Swiss francs to the euro. This move |
was a surprise for institutional and retail currency traders alike, leading to a violent uptick in foreign exchange market volatility that caused severe pain across a number of investors and to broker dealers. The U.S. dollar strengthened against a basket of currencies over the year. |
¢ | In real assets, the year saw a continuation of the commodity rout that began in 2014. Pulled down by the 42.1% fall in WTI Crude, the Bloomberg Commodity Total Return Index fell 25.7% and the more energy-heavy S&P GSCI® fell by 37.9%. The rout in oil came on the back of the strength of the U.S. dollar, weaker growth in emerging markets, the deflationary effects of the Chinese equity market rout, as well as high supply due to OPEC’s decision towards the end of 2014 to not cut oil production. Master limited partnerships (MLPs) finished the year down 30.1%, which included a -22.1% return in the third quarter 2015, their weakest quarter ever. While MLPs received stability from continued lower interest rates, they could not overcome the substantial drop in crude oil and the more commodity-sensitive MLP sectors such as exploration & production and field services were the weakest performers. REITs, on the other hand, finished a volatile year with the FTSE NAREIT All Equity REITs Index up 5.4% as real estate fundamentals remained strong. REITs are correlated to the market expectation of future interest rates and were negatively impacted by rising global yields during the course of the year and the expectation of a Fed rate hike. |
¢ | Investment strategies historically employed by hedge funds (global macro, credit-driven, equity long/short, and event-driven) had mixed performance for the fiscal year. Global macro strategies, in particular commodity trading advisor (CTA) strategies, were the best performers. CTAs seek to capitalize on trends that present themselves in equities, the strength of the U.S. dollar, as well as the downward slide in commodity prices. Credit-driven strategies, which seek opportunities across the fixed income markets, trailed throughout the year as spreads widened in high yield, and investments in natural resource sectors weighed on performance. Long-biased managers with more exposure to equities and lower-rated credit, particularly in the energy sector, generally underperformed. Equity long/ |
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
16
Table of Contents
Alternative Total Solution Fund (Continued)
short strategies, which take bullish (“long”) and bearish (“short”) positions in equities and equity derivatives, had muted performance and generally cut risk. However, managers were negatively affected by declines in the healthcare and energy sectors. Managers with lower levels of overall net exposure and more robust single-stock “short” portfolios outperformed their peers, notwithstanding the general lack of meaningful performance from short selling. Finally, managers employing event-driven strategies, which seek to capitalize on corporate events such as mergers, takeovers, and acquisitions, found the market environment especially challenging and their strategies suffered the largest losses for the fiscal year. Merger arbitrage spreads nearly doubled since the beginning of the summer, and impacted many M&A-related stocks regardless of the fundamental prospects for individual deals. (Refer to the “Key Investment Terms” section for fuller definitions of certain of the strategies discussed here.) |
What factors affected the Fund’s performance during the fiscal year?
¢ | The Fund weathered the storm in alternative investments and was marginally down for the fiscal year. The Fund’s exposure to multiple asset classes and investment strategies mitigated losses to any single segment of the alternatives markets and allowed the Fund to protect capital during sharp market downturns. Positive performance from the strategies historically employed by hedge funds was offset by negative returns in the alternative fixed income and real asset segments. Specifically, the equity long/short and global macro strategies, as well as REITs and infrastructure equities in the real asset segment, all had strong positive performance. The biggest detractors were investments in MLPs, which were impacted by the declining price of oil. Overall, the Fund had exposure to a broad range of alternative strategies. |
¢ | The market environment for credit investments was particularly challenging over the past year. Credit spreads widened during the year, and the shipping and commodity sectors, especially energy, came under pressure. Additionally, lower-rated credits underperformed higher rated ones. As a result, the credit-oriented subadvisers |
(at approximately 30% of the portfolio) posted slight negative returns. Interest rate and credit hedges were used selectively within several of the Fund’s portfolios. The U.S.-oriented credit subadviser was conservatively positioned with a diversified allocation, and mitigated losses by trading around high yield short positions over the course of the year. They were, however, negatively impacted by holdings in energy-related positions and lower quality issuers. The event-oriented credit subadviser maintained its high conviction positions and saw a number of events play out as anticipated. Prices of positions in the energy and telecom sectors declined with the market, but the subadviser remained constructive on those companies’ underlying fundamentals. The emerging market debt subadviser was negatively affected in the first half of the fiscal year when emerging markets came under pressure due to uncertainties regarding Greece, elections in Argentina and global growth concerns, and declining commodity prices. Their performance rebounded strongly in the second part of the fiscal year. The emerging market debt portfolio is comprised of corporate U.S. dollar bonds or non-U.S. dollar bonds that are predominantly hedged back to the U.S. dollar using derivatives. |
¢ | The real asset component, at an approximate 20% portfolio weight, was the largest detractor for the fiscal year, driven by the decline in MLPs. The MLP subadviser continued to manage the portfolio with a structural bias towards midstream MLPs, which have less direct commodity risk and they opportunistically hedged MLP, equity market, and interest rate risk. They also had good security selection. However, believing that the market was oversold, the subadviser took off the MLP hedge that had been on the portfolio for most of the fiscal year early in the third quarter and became fully invested. Thus, the losses suffered in this portfolio were commensurate with those of the MLP market. REITs were a positive contributor for the fiscal year, and the subadviser outperformed the market by overweighting apartments and regional malls. The infrastructure subadviser had a positive return for the fiscal year and outperformed due to positive security selection and an overweight in Italian infrastructure equities. |
¢ | In aggregate, the strategies historically employed by hedge funds (at an approximate 50% portfolio weight) had very solid performance and mitigated market losses during the fiscal year. Across all such strategies, derivatives added roughly 1.45% to the Fund’s return, with the most significant contributions coming from futures contracts (+0.83%), forward contracts (+0.45%), and swaps (+0.30%). Options, warrants, and rights had a slight negative impact on performance overall. |
¢ | Two of the Fund’s four subadvisers in such strategies had strong positive performance and handily exceeded their respective benchmarks and peers. The equity long/short strategy’s subadviser was approximately 65% hedged and benefited from outperformance due to security selection in both the long and short sides of the portfolio. The global macro strategy’s subadviser, implementing a portfolio consisting primarily of derivatives, had a positive return for the fiscal year with the gains coming predominantly from short positions in commodities, currency trading and long positions across short term and long term/ intermediate rates. The convertible bond subadviser was flat for the year as equity hedges, implemented via derivatives, offset losses in other parts of the portfolio. It was a difficult market environment for event-driven strategies as a whole over the course of the fiscal year, and the event-driven subadviser underperformed peers due to security selection, including losses on several positions where exposure was via swaps. The subadviser reduced gross and net exposure over the course of the year and increased diversification within its allocation. |
¢ | Over the course of the fiscal year, allocations to the various alternative strategies were fairly consistent. In the third quarter, on the belief that MLPs had oversold, the interim target was raised by 2% (from 10% to 12%). The allocation to REITs was moved to 1% above the long-term target of 5%. Due to strong performance of the equity long/short strategy, the interim target the equity long/short was raised from 15% to 23%, while allocations were lowered to event-driven equities (from 15% to 9%) and convertibles (from 10% to 8%). No changes were made to the subadviser roster during the fiscal year. |
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
17
Table of Contents
Alternative Total Solution Fund (Continued)
The preceding information is the opinion of portfolio management. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
There is no guarantee that the Fund will meet its objective.
Alternative investments are not suitable for all investors.
Alternative Investments: Investments in liquid alternative mutual funds expose investors to risks that have the potential to result in losses. These strategies involve risks that may not be present in more traditional (e.g., equity or fixed income) mutual funds, including the risks associated with derivatives, short sales, and leverage, which may increase volatility. Alternative investments are not suitable for all investors.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Non-Diversified: The fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Alternative Total Solution Fund
The following table presents asset allocations within certain sectors and as a percentage of total investments net of securities shold short as of October 31, 2015.
| ||
Common Stocks | 33% | |
Corporate Bonds | 21% | |
Master Limited Partnerships | 10% | |
Real Estate Investment Trusts | 8% | |
Convertible Bonds | 7% | |
Loan Agreements | 4% | |
Foreign Government Securities | 2% | |
Other (includes short-term investments and securities sold short) | 15% | |
| ||
Total |
100% | |
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
18
Table of Contents
Alternative Total Solution Fund (Continued)
Total Returns1 for period ended 10/31/15 | ||||||||||||
1 Year
| Since
| Inception
| ||||||||||
Class A Shares at NAV2
|
|
-3.07%
|
|
|
-0.94%
|
|
|
4/23/14
|
| |||
Class A Shares at POP3,4
|
|
-8.64
|
|
|
-4.72
|
|
|
4/23/14
|
| |||
Class C Shares at NAV2 and with CDSC4
|
|
-3.78
|
|
|
-1.67
|
|
|
4/23/14
|
| |||
Class I Shares at NAV
|
|
-2.83
|
|
|
-0.71
|
|
|
4/23/14
|
| |||
Class R6 Shares at NAV
|
|
—
|
|
|
-2.35
|
|
|
11/19/14
|
| |||
HFRX Global Hedge Fund Index
|
|
-2.05
|
|
|
-1.855
|
|
|
—
|
| |||
Fund Expense Ratios6: A Shares: Gross 4.14%, Net 3.04%; C Shares: Gross 4.89%, Net 3.79%; I Shares: Gross 3.89%, Net 2.79%; R6 Shares: Gross 3.88%, Net 2.78%.
|
|
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 gains distributions. Total returns are not annualized.
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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5 The since inception index return is from the inception date of Class A, Class C and Class I. Index return is -1.76% for inception date of Class R6.
6 The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015 as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 29, 2016. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For periods ended 10/31
This chart assumes an initial investment of $10,000 made on April 23, 2014 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
19
Table of Contents
Fund Summary | Ticker Symbols: | |||||
Class A: | VCOAX | |||||
Class C: | VCOCX | |||||
Class I: | VCOIX | |||||
Class R6: | VRCOX |
¢ | The Fund is non-diversified and has an investment objective of total return with a secondary objective of income. |
¢ | For the fiscal period June 5, 2015 (inception date) through October 31, 2015, the Fund’s Class A shares at NAV returned -1.29%*, Class C shares returned -1.62%*, Class I shares returned -1.21%*, and Class R6 shares returned -1.21%*. For the same period, the Barclays U.S. Aggregate Bond Index, a broad-based fixed income index, returned 1.25%* and the 50% Barclays High-Yield Index/50% Credit Suisse Leveraged Loan Index, which is the Fund’s style-specific benchmark index appropriate for comparison, returned -1.78%*. |
* | Returns less than 1 year are not annualized. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above.
There is no guarantee that the Fund will meet its objective.
† The Fund is less than six months old - No commentary required.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise and fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high-yield securities than investment-grade securities.
Bank Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
Non- Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer- specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Credit Opportunities Fund
The following table presents asset allocations within certain sectors and as a percentage of total investments as of October 31, 2015.
Corporate Bonds | 33% | |
Loan Agreements | 11% | |
Foreign Government Securities | 2% | |
Convertible Bonds | 2% | |
Mortgaged-Backed Securities | 1% | |
Other (includes short-term investments) | 51% | |
| ||
Total | 100% | |
| ||
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
20
Table of Contents
Credit Opportunities Fund (Continued)
Total Returns1 for periods ended 10/31/15 | ||||||
Since Inception
| Inception Date
| |||||
Class A Shares at NAV2
|
|
-1.29%
|
|
6/05/15
| ||
Class A Shares at POP3
|
|
-4.99
|
|
6/05/15
| ||
Class C Shares at NAV2
|
|
-1.62
|
|
6/05/15
| ||
Class C Shares with CDSC4
|
|
-2.60
|
|
6/05/15
| ||
Class I Shares at NAV
|
|
-1.21
|
|
6/05/15
| ||
Class R6 Shares at NAV
|
|
-1.21
|
|
6/05/15
| ||
Barclays U.S. Aggregate Bond Index
|
|
1.255
|
|
—
| ||
50% Barclays High-Yield Index/50%Credit Suisse Leveraged Loan Index
|
|
-1.785
|
|
—
| ||
Fund Expense Ratios6: A Shares: Gross 1.61%, Net 1.35%; C Shares: Gross 2.36%, Net 2.10%; I Shares: Gross 1.36%, Net 1.10%; R6 Shares: Gross 1.30%, Net 1.04%.
|
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 gains distributions. Total returns are not annualized.
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 3.75% 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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5 The since inception index return is from the Fund’s inception date.
6 The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015, as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 28, 2017. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on June 5, 2015 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
21
Table of Contents
Multi-Strategy Target Return Fund
Fund Summary | Ticker Symbols: | |||
Class A: Class C: Class I: | VMSAX VCMSX VMSIX |
¢ | The Fund is non-diversified and has an investment objective of seeking long-term total return. |
¢ | For the fiscal period July 20, 2015 (inception date) through October 31, 2015, the Fund’s Class A shares at NAV returned 0.20%*, Class C shares returned 0.00%*, and Class I shares returned 0.30%*. For the same period, the S&P 500® Index, a broad-based index, returned -0.63%* and the U.S. Treasury Federal Funds Rate, which is the Fund’s style-specific benchmark appropriate for comparison, returned 0.02%*. |
* | Returns less than 1 year are not annualized. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above.
How did the markets perform during the Fund’s partial fiscal year?
¢ | Global equity markets observed increased volatility and negative returns during the Fund’s partial fiscal year, from its inception date of July 20, 2015 through October 31, 2015. Global markets in July were dominated by concerns of a possible Greek exit from the euro zone, which culminated in the shutdown of the Athens Stock Exchange (ASE). During the month, developed market equities and bonds delivered moderately positive returns with the exception of U.S. high yield credit. Emerging markets were largely affected by weak commodity prices and a strong dollar. |
¢ | August proved a difficult month for risk assets, largely attributed to Chinese growth concerns, uncertainty over the timing of the Federal Reserve’s decision to increase interest rates, and the prolonged weakness in commodities. Emerging market currencies and equities markets were affected the most. Chinese, Greek, and eurozone stock markets fell more than 12%, 8%, and 8.5%, respectively, while the S&P 500® Index declined more than 6%. Emerging market bonds detracted up to 2.3% in Latin America, whereas U.K. and U.S. government bonds benefited from a flight to quality, posting slightly positive gains. |
¢ | September observed the continuation of volatility that started in August. Concerns persisted over growth in China, falling commodity prices, and the impact of a rising U.S. dollar. The Fed’s decision to hold U.S. interest rates served to validate global financial market nervousness, especially when supporting their decision by noting “concerns over global growth.” The Japan Index (Nikkei Stock Average) suffered the greatest stock market losses at negative 8%, the Spain Index (IBEX 35) declined 7.4%, and the German Index (DAX) lost 5.7%. Developed market bonds performed well during this volatile month, and emerging market bonds continued to devalue along with emerging market currencies. |
¢ | Risk sentiment improved markedly in October as the European Central Bank (ECB) issued supportive remarks for markets. The possible extension of quantitative easing (QE) and better-than-expected economic data from China resulted in a rebound in equity markets. China retraced prior month losses and delivered 8.5% on the Hong Kong Index. Other major global stock market indices also performed well, such as the DAX, S&P 500® Index, and Nikkei Stock Average, delivering 11.7%, 8.4%, and 9.7%, respectively. With the exception of U.K. gilts, developed market bonds performed well, and emerging market sovereign bonds saw a strong recovery. Commodities were largely mixed. |
¢ | October’s rebound in global markets was a welcome reprieve from the third quarter, which was the weakest quarter since the third quarter of 2011 for the S&P 500® Index and STOXX® Europe 600 Index, and the worst quarter for the Nikkei Stock Average since 2010. October, in contrast, witnessed these indices rebound from 7% to 10%. |
What factors affected the Fund’s performance during its partial fiscal year?
¢ | During July, the Fund benefited from its risk-reducing strategies including long Australia rates, Italian curve flattening, and long currency volatility in the form of short Chinese yuan (CNH) versus the U.S. dollar (USD). Additional positive contributions came from opportunistic return strategies, such as long Italian versus short Spanish equities, and directional market strategies, such as long |
Mexican credit and long U.S. consumer equities. Detractors were largely equity-based positions in Europe, Japan, and Turkey as well as long U.S. inflation. |
¢ | In August, the majority of losses within the Fund were within the market and opportunistic equity-based strategies like long European, Japanese, Chinese, Polish, Turkish, and U.S. consumer stocks. Losses in these segments of the portfolio were limited by their options-based implementation and were further mitigated by the Fund’s risk-reducing strategies. These volatility-based strategies, such as the long EURO STOXX® 50 Index variance, were largely profitable and served to stabilize the portfolio as global volatility increased. |
¢ | In September, the Fund’s risk-reducing strategies kicked in, more than offsetting losses in the market-directional strategies. The Fund’s equity volatility strategies contributed the most to performance as markets gyrated daily. Additional risk-reducing strategies drove positive performance, including long Australia and Korean rates as well as being broadly long the U.S. dollar. Detractors came from exposure to European and Japanese equities. |
¢ | The Fund’s equity exposure through directional positions in European equities, the U.S. consumer discretionary sector, and Japanese equities were the largest contributors to performance in October. Additionally, the Fund’s short 2-year U.S. Treasury position benefited from better U.S. macroeconomic data. Detractors in October included the Fund’s long U.S. dollar theme attributed to the Fed’s decision to hold interest rates, and volatility-based strategies also detracted during a month when equity volatility subsided. |
¢ | The Fund’s risk-reducing strategies were strong drivers to the overall positive performance seen since inception. The Fund’s relative value position to exploit the market behavior of U.S. large capitalization stocks (long) and small capitalization stocks (short) in a broad market selloff has proven to offset losses in market directional strategies. Additionally, various other strategies, including long Australia rates, long the U.S. dollar, and volatility-based themes, have contributed positively to the Fund since its launch. |
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
22
Table of Contents
Multi-Strategy Target Return Fund (Continued)
¢ | Detractors from performance came from the market and opportunistic strategies. Since the Fund’s inception, equity-based losses came from exposure to Japan, the eurozone, Poland, Turkey, and China, albeit in limited fashion, attributed to their options-based implementation. Other strategies that diminished performance came from exposure to U.S. inflation as a consequence of tepid U.S. GDP growth, and short U.S. rates due to the Federal Reserve’s decision to not increase interest rates. |
The preceding information is the opinion of portfolio management. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as Investment advice. Past performance is no guarantee of future results, and there is no guarantee that market forcasts will be realized.
There is no guarantee that the Fund will meet its objective.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.
Counterparties: There is risk that a party upon whom the fund relies to complete a transaction will default.
Portfolio Turnover: The fund’s principal investments strategies will result in a consistently high portfolio turnover rate. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account.
Non-Diversified: The fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Multi-Strategy Target Return Fund | ||
The following table presents asset allocations within certain sectors and as a percentage of total investments as of October 31, 2015. | ||
Foreign Government Securities | 13% | |
Exchange-Traded Funds | 4% | |
Mortgaged-Backed Securities | 3% | |
Purchased Options | 3% | |
Purchased Swaptions | 1% | |
Other (includes short-term investments) | 76% | |
| ||
Total | 100% | |
| ||
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
23
Table of Contents
Multi-Strategy Target Return Fund (Continued)
Total Returns1 for periods ended 10/31/15
| ||||||||
Since Inception | Inception Date | |||||||
Class A Shares at NAV2
| 0.20% | 7/20/15 | ||||||
Class A Shares at POP3,4
| -5.56 | 7/20/15 | ||||||
Class C Shares at NAV2
| 0.00 | 7/20/15 | ||||||
Class C Shares with CDSC4
| -1.00 | 7/20/15 | ||||||
Class I Shares at NAV
| 0.30 | 7/20/15 | ||||||
S&P 500® Index
| -0.635 | — | ||||||
U.S. Treasury Federal Funds Rate
| 0.025 | — | ||||||
Fund Expense Ratios6: A Shares: Gross 2.26%, Net 1.80%; C Shares: Gross 3.01%, Net 2.55%; I Shares: Gross 2.01%, Net 1.55%. |
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 gains distributions. Total returns are not annualized.
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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5The since inception index return is from the Fund’s inception date.
6The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015, as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 28, 2017. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on July 20, 2015 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
24
Table of Contents
Fund Summary | Ticker Symbols: | |||
Class A: Class C: Class I: | VLPAX VLPCX VLPIX |
¢ | The Fund is non-diversified and has an investment objective of seeking total return with a secondary objective of income. |
¢ | For the fiscal period from September 9, 2015 (inception date) through October 31, 2015, the Fund’s Class A shares at NAV returned -2.10%*, Class C shares returned -2.20%*, and Class I shares returned -2.10%*. For the same period, the S&P 500® Index, a broad-based index, returned 7.33%* and the Alerian MLP Index, which is the Fund’s style-specific benchmark appropriate for comparison, returned -3.58%*. |
* | Returns less than 1 year are not annualized. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above.
There is no guarantee that the Fund will meet its objective.
† The Fund is less than six months old - No commentary required.
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulation, or factors affecting underlying assets.
Energy Sector Concentration: The fund’s investments are concentrated in the energy sector and may present more risks than if the fund were broadly diversified over numerous sectors of the economy.
Non-Diversified: The fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the fund’s assets.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Select MLP and Energy Fund
The following table presents asset allocations within certain sectors and as a percentage of total investments as of October 31, 2015.
Master Limited Partnerships and Related Companies | ||
Petroleum Transportation & Storage | 24% | |
Natural Gas Pipelines | 15% | |
Diversified | 14% | |
Gathering/Processing | 12% | |
Electric, LDC & Power | 12% | |
Downstream/Other | 6% | |
Marine Shipping | 5% | |
| ||
Total Master Limited | ||
Partnerships and Related Companies | 88% | |
Other (includes short-term investments) | 12% | |
| ||
Total | 100% | |
| ||
| ||
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
25
Table of Contents
Select MLP and Energy Fund (Continued)
Total Returns1 for periods ended 10/31/15 | ||||||||
Since Inception | Inception Date | |||||||
Class A Shares at NAV2
|
| -2.10%
|
|
| 9/09/15
|
| ||
Class A Shares at POP3,4
|
| -7.73
|
|
| 9/09/15
|
| ||
Class C Shares at NAV2
|
| -2.20
|
|
| 9/09/15
|
| ||
Class C Shares with CDSC4
|
| -3.18
|
|
| 9/09/15
|
| ||
Class I Shares at NAV
|
| -2.10
|
|
| 9/09/15
|
| ||
S&P 500® Index
|
| 7.335
|
|
| —
|
| ||
Alerian MLP Index
|
| -3.585
|
|
| —
|
|
Fund Expense Ratios6: A Shares: Gross 2.26%, Net 1.55%; C Shares: Gross 3.01%, Net 2.30%; I Shares: Gross 2.01%, 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 gains distributions. Total returns are not annualized.
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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5The since inception index return is from the Fund’s inception date.
6The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015, as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 28, 2017. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on September 9, 2015 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
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.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
26
Table of Contents
Fund Summary | Ticker Symbols: | |||
Class A: Class C: Class I: | VASBX VSBCX VISBX |
¢ | The Fund is diversified and has an investment objective of seeking total return comprised of income and capital appreciation. |
¢ | For the fiscal period from November 1, 2014 through October 31, 2015, the Fund’s Class A shares at NAV returned 1.91%, Class C shares returned 1.06%, and Class I shares returned 2.07%. For the same period, the Barclays U.S. Aggregate Bond Index, a broad-based fixed income index, returned 1.96% and the BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index, which is the Fund’s style-specific benchmark index appropriate for comparison, returned 0.26%. |
All performance figures assume reinvestment of distributions and exclude the effect of sales charges. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above.
How did the market perform during the Fund’s fiscal year?
¢ | Most spread sectors underperformed U.S. Treasuries during the fiscal year. Plummeting oil prices dominated market volatility and investor concerns in the first half of the fiscal year, especially during the fourth quarter of 2014. Brent crude, the international benchmark for oil, fell about 44% between October 2014 (when the price was roughly $90 a barrel) and October 2015, to end the period at roughly $50 a barrel. Brent crude hit a 12-month low of roughly $45 a barrel on August 24, 2015. |
¢ | Globally, concerns over slowing growth in China and the Greek debt crisis weighed on the fixed income markets. A looming Federal Reserve interest rate hike, with negative implications for capital flows and debt financing, added to the turmoil with some emerging market central banks (unlike the International Monetary Fund and the World Bank) calling for the Fed to raise rates and remove an uncertainty that could prove to be more harmful than the actual impact. |
¢ | The waiting game for the Fed to raise rates from their near-zero level which has been in place since December 2008, continued through the end of the Fund’s fiscal year. As of its October meeting, the Fed had decided to leave its benchmark rate unchanged, balancing |
relatively strong U.S. growth and labor market conditions against a lack of inflation, a strengthening U.S. dollar, and a shaky global economy. |
¢ | Over the last 12 months, yields increased on the short end of the U.S. Treasury curve and decreased on the intermediate to long end, and the curve flattened overall. |
What factors affected the Fund’s performance during its fiscal year?
¢ | Outperformance of U.S. Treasuries and agency mortgages relative to most fixed income spread sectors was the key driver of the Fund’s performance for the fiscal year as the market rewarded an up-in-quality bias. |
¢ | In terms of fixed income sectors, the Fund’s allocation to structured product – specifically, asset-backed securities, commercial mortgage-backed securities, and non-agency residential mortgages – were positive contributors to performance for the fiscal year. |
¢ | During the fiscal year, the Fund’s allocation to corporate high yield, emerging markets, and Yankee high-quality bonds detracted from performance. The Fund’s exposure to commodity issuers within the energy and metals & mining industries negatively impacted performance. |
¢ | On the derivatives front, the Fund benefited from the options overlay strategy both from an income and total return perspective. This strategy seeks to generate additional income through the use of index-based, out-of-the money put and call spreads. This strategy is driven by implied volatility, as measured by the CBOE Volatility Index®or “VIX®” as it’s also known, and seeks to exploit pricing inefficiencies in options on the S&P 500® Index. |
¢ | Viewing the year as a whole masks the true volatility that occurred in the market at specific times. The S&P 500® Index experienced its most volatile month of the year in August. From July 31 to August 31, the S&P 500® Index was down 6.02%, while the VIX was up 134.57%. The period of highest anxiety for the market during this time was August 24-27, when the S&P 500® Index declined 9.95% while the VIX® advanced 212.9%. With such a large and unexpected market move, the Fund’s |
options overlay strategy experienced its only unsuccessful trade of the year. After that, the strategy adapted to the new market environment and continued to produce profitable trades moving forward. |
¢ | During low volatility periods, as was experienced for most of the fiscal year, a range-bound market is an ideal environment for the options strategy. This is because the strategy is able to retain all of the premium generated from the options program due to no in-the-money settlements of the short option positions. When the S&P 500® Index makes large and fast moves that are not priced into the implied volatility of the options market, the strategy can and will take losses as we saw in August. Since August, the strategy adjusted to the change in environment and returned to more profitable trades. For the 12 months ended October 31, 2015, the options strategy performed as expected, generating income within its targeted yield range, and enhancing the Fund’s total return by 3.38% (gross of fees). |
¢ | The Fund also benefited from shorting the Brazilian Real, which was one of the weakest currencies within emerging markets. |
The preceding information is the opinion of portfolio management. Any such opinions are subject to change at any time based upon market or other conditions and should not be relied upon as investment advice. Past performance is no guarantee of future results, and there is no guarantee that market forecasts will be realized.
There is no guarantee that the Fund will meet its objective.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
27
Table of Contents
Strategic Income Fund (Continued)
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
Bank Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.
ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset-and mortgage-backed securities. These securities are also subject to risks associated with the repayment of underlying collateral.
Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment.
Call/Put Spreads: Buying and selling call and put option spreads on the SPX Index risks the loss of the premium when buying, can limit upside participation and increase downside losses.
Prospectus: For additional information on risks, please see the fund’s prospectus.
Strategic Income Fund
| ||
The following table presents asset allocations within certain sectors and as a percentage of total investments as of October 31, 2015. | ||
Corporate Bonds | 62% | |
Loan Agreements | 14% | |
Mortgaged-Backed Securities | 11% | |
Asset-Backed Securities | 5% | |
Foreign Government Securities | 1% | |
U.S. Government Securities | 1% | |
Preferred Stock | 1% | |
Affiliated Mutual Fund | 2% | |
Other (includes short-term investments) | 3% | |
| ||
Total | 100% | |
| ||
|
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
28
Table of Contents
Strategic Income Fund (Continued)
Total Returns1 for periods ended 10/31/15 | ||||||||||||
1 year | Since Inception | Inception Date | ||||||||||
Class A Shares at NAV2
|
| 1.91%
|
|
| 1.38%
|
|
| 9/08/14
|
| |||
Class A Shares at POP3,4
|
| -1.91
|
|
| -1.95
|
|
| 9/08/14
|
| |||
Class C Shares at NAV2 and with CDSC4
|
| 1.06
|
|
| 0.55
|
|
| 9/08/14
|
| |||
Class I Shares at NAV
|
| 2.07
|
|
| 1.55
|
|
| 9/08/14
|
| |||
Barclays U.S. Aggregate Bond Index
|
| 1.96
|
|
| 2.405
|
|
| —
|
| |||
BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index
|
| 0.26
|
|
| 0.265
|
|
| —
|
| |||
Fund Expense Ratios6: A Shares: Gross 2.12%, Net 1.41%; C Shares: Gross 2.87%, Net 2.16%; I Shares: Gross 1.87%, Net 1.16%.
|
|
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 gains 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 3.75% 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 made within 18 months of purchase in which a finder’s fee was paid and all redemptions of Class C shares within the first year are 1% and 0% thereafter.
5The since inception index return is from the Fund’s inception date.
6The expense ratios of the Fund are set forth according to the prospectus for the Fund effective September 8, 2015, as supplemented and revised, and may differ from the expense ratios disclosed in the Financial Highlights tables in this report. See the Financial Highlights for more current expense ratios. Net Expense: Expenses reduced by the contractual fee waiver in effect through February 29, 2016. Gross Expense: Does not reflect the effect of the fee waiver. Expense ratios reflect fees and expenses associated with the underlying funds.
Growth of $10,000 For period ended 10/31
This chart assumes an initial investment of $10,000 made on September 8, 2014 (inception date of the Fund), for Class A, Class C, and Class I shares including any applicable sales charges or fees. Performance assumes reinvestment of dividends and capital gain distributions.
The indexes are unmanaged and not available for direct investment; therefore, their performance does not reflect the expenses associated with active management of an actual portfolio.
For information regarding the indexes and certain investment terms, see the Key Investment Terms starting on page 4.
29
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
FOREIGN GOVERNMENT SECURITIES—3.0% | ||||||||||
Argentine Republic Government International Bond 0.000%, 12/15/35 | 4,340 | EUR | $ 481 | |||||||
Brazil Notas do Tesouro Nacional Series F | 320 | BRL | 81 | |||||||
Hellenic Republic Government Bond 3.000%, 2/24/23(2) | 19 | EUR | 16 | |||||||
3.000%, 2/24/24(2) | 19 | EUR | 16 | |||||||
3.000%, 2/24/25(2) | 19 | EUR | 15 | |||||||
3.000%, 2/24/26(2) | 19 | EUR | 15 | |||||||
3.000%, 2/24/27(2) | 19 | EUR | 15 | |||||||
3.000%, 2/24/28(2) | 19 | EUR | 14 | |||||||
3.000%, 2/24/29(2) | 19 | EUR | 14 | |||||||
3.000%, 2/24/30(2) | 19 | EUR | 14 | |||||||
3.000%, 2/24/31(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/32(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/33(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/34(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/35(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/36(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/37(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/38(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/39(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/40(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/41(2) | 19 | EUR | 13 | |||||||
3.000%, 2/24/42(2) | 19 | EUR | 13 | |||||||
Kenya Treasury Bonds 144A | $ | 250 | 174 | |||||||
Ukraine Railways via Shortline PLC RegS | 200 | 161 | ||||||||
| ||||||||||
TOTAL FOREIGN GOVERNMENT SECURITIES (Identified Cost $1,226) |
| 1,172 | ||||||||
| ||||||||||
MUNICIPAL BONDS—0.8% | ||||||||||
New Jersey—0.2% | ||||||||||
Tobacco Settlement | 95 | 77 | ||||||||
|
| |||||||||
PAR VALUE | VALUE | |||||||||
Puerto Rico—0.3% | ||||||||||
Commonwealth of Puerto Rico, Series A | $ | 110 | $ 80 | |||||||
5.125%, 7/1/37 | 5 | 3 | ||||||||
5.250%, 7/1/37 | 5 | 3 | ||||||||
5.000%, 7/1/41 | 5 | 3 | ||||||||
Puerto Rico Sales Tax Financing Corp. Series A | 10 | 6 | ||||||||
0.000%, 8/1/54 | 330 | 22 | ||||||||
|
| |||||||||
117 | ||||||||||
|
| |||||||||
Texas—0.3% | ||||||||||
Texas Public Finance Authority | 100 | 99 | ||||||||
| ||||||||||
TOTAL MUNICIPAL BONDS (Identified Cost $296) |
| 293 | ||||||||
| ||||||||||
MORTGAGED-BACKED SECURITIES—0.1% | ||||||||||
Non-Agency—0.1% | ||||||||||
Great Wolf Trust 15-WFMZ, M 144A | 30 | 30 | ||||||||
| ||||||||||
TOTAL MORTGAGED-BACKED SECURITIES |
| |||||||||
(Identified Cost $30) |
| 30 | ||||||||
| ||||||||||
ASSET-BACKED SECURITIES—0.9% | ||||||||||
Cutwater Ltd. CLO 14-1A, C 144A | 100 | 95 | ||||||||
THL Credit Wind River CLO Ltd. 14-3A, D 144A | 250 | 235 | ||||||||
| ||||||||||
TOTAL ASSET-BACKED SECURITIES |
| |||||||||
(Identified Cost $336) |
| 330 | ||||||||
| ||||||||||
CORPORATE BONDS—40.1% | ||||||||||
Communications—0.0% | ||||||||||
Altice US Finance SA 144A | 15 | 14 | ||||||||
|
| |||||||||
Consumer Discretionary—6.0% | ||||||||||
APX Group, Inc. | 10 | 10 | ||||||||
8.750%, 12/1/20 | 180 | 149 | ||||||||
Bon-Ton Department Stores, Inc. (The) |
PAR VALUE | VALUE | |||||||||
Consumer Discretionary—continued | ||||||||||
8.000%, 6/15/21 | $ | 70 | $ 40 | |||||||
Caesars Entertainment Operating Co., Inc. | 210 | 170 | ||||||||
9.000%, 2/15/20(6) | 110 | 89 | ||||||||
Chester Downs & Marina LLC / Chester Downs Finance Corp. 144A | 645 | 487 | ||||||||
Claire’s Stores, Inc. | 95 | 39 | ||||||||
Claire’s Stores, Inc. 144A | 60 | 49 | ||||||||
7.750%, 6/1/20(3) | 15 | 5 | ||||||||
Cumulus Media Holdings, Inc. | 55 | 37 | ||||||||
DISH DBS Corp. | 5 | 5 | ||||||||
5.875%, 11/15/24 | 20 | 19 | ||||||||
Edcon Pty Ltd. RegS | 180 | 113 | ||||||||
Grupo Famsa SAB de CV RegS | 57 | 52 | ||||||||
Guitar Center, Inc. 144A | 55 | 52 | ||||||||
9.625%, 4/15/20(3) | 160 | 134 | ||||||||
iHeartCommunications, Inc. | 15 | 8 | ||||||||
9.000%, 3/1/21 | 20 | 17 | ||||||||
iHeartCommunications, Inc. PIK Capitalization, 2.00% Interest, 12.00% Capitalization | 46 | 19 | ||||||||
JC Penney Corp., Inc. | 50 | 46 | ||||||||
McClatchy Co. (The) | 55 | 53 | ||||||||
Mohegan Tribal Gaming Authority | 140 | 145 | ||||||||
Nine West Holdings, Inc. 144A | 144 | 81 | ||||||||
Radio One, Inc. 144A | 80 | 66 | ||||||||
Scientific Games International, Inc. |
See Notes to Financial Statements.
30
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR | ||||||||
VALUE | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
10.000%, 12/1/22 | $ | 60 | $ 54 | |||||
Shingle Springs Tribal Gaming Authority 144A | 115 | 121 | ||||||
Sirius XM Radio, Inc. | 100 | 103 | ||||||
Time Warner Cable, Inc. | 15 | 15 | ||||||
5.500%, 9/1/41 | 20 | 18 | ||||||
Toys R Us, Inc. | 75 | 61 | ||||||
7.375%, 10/15/18 | 90 | 60 | ||||||
Yum! Brands, Inc. | 20 | 18 | ||||||
|
| |||||||
2,335 | ||||||||
|
| |||||||
Consumer Staples—1.8% | ||||||||
Hema Bondco I BV | 100 | 80 | ||||||
Kissner Milling Co., Ltd. 144A | 175 | 178 | ||||||
MHP SA RegS | 200 | 173 | ||||||
New Albertson’s, Inc. | 160 | 158 | ||||||
7.450%, 8/1/29 | 20 | 20 | ||||||
8.700%, 5/1/30 | 5 | 5 | ||||||
8.000%, 5/1/31 | 15 | 15 | ||||||
Rite Aid Corp. 144A | 20 | 22 | ||||||
6.875%, 12/15/28(3) | 50 | 60 | ||||||
|
| |||||||
711 | ||||||||
|
| |||||||
Energy—8.6% | ||||||||
Alpha Natural | 25 | 1 | ||||||
6.250%, 6/1/21(6) | 30 | 1 | ||||||
Basic Energy Services, Inc. | 60 | 24 | ||||||
7.750%, 10/15/22 | 30 | 11 | ||||||
Berau Capital | 100 | 31 | ||||||
Berau Coal Energy Tbk PT RegS | 200 | 61 | ||||||
Bumi Capital Pte, Ltd. RegS(4)(6) |
PAR | ||||||||
VALUE | VALUE | |||||||
Energy—continued | ||||||||
12.000%, 11/10/16 | $ | 300 | $ 59 | |||||
Bumi Investment Pte, Ltd. RegS | 780 | 152 | ||||||
Citgo Holding, Inc. | 65 | 66 | ||||||
Energy Transfer Equity LP | 90 | 88 | ||||||
EXCO Resources, Inc. | 30 | 7 | ||||||
Fermaca Enterprises de RL de CV RegS | 245 | 236 | ||||||
Forbes Energy Services Ltd. | 530 | 360 | ||||||
Jupiter Resources, Inc. | 100 | 53 | ||||||
Kosmos Energy, Ltd. | 40 | 35 | ||||||
MEG Energy Corp. | 60 | 52 | ||||||
Memorial Production Partners LP /Memorial Production Finance Corp. | 25 | 17 | ||||||
6.875%, 8/1/22 | 45 | 29 | ||||||
Murray Energy Corp. | 75 | 20 | ||||||
Pacific Drilling SA | 50 | 27 | ||||||
Pacific Drilling V, Ltd. | 428 | 293 | ||||||
Pacific Rubiales Energy Corp. 144A | 100 | 38 | ||||||
Pacific Rubiales Energy Corp. RegS | 100 | 44 | ||||||
Parker Drilling Co. | 85 | 66 | ||||||
Petrobras Global Finance BV | 47 | 35 | ||||||
Petroleos de Venezuela SA | ||||||||
PAR | ||||||||
VALUE | VALUE | |||||||
Energy—continued | ||||||||
5.250%, 4/12/17 | $ | 566 | $ 320 | |||||
Petroleos de Venezuela SA RegS | 133 | 56 | ||||||
Rockies Express Pipeline LLC 144A | 75 | 76 | ||||||
Sabine Pass Liquefaction LLC | 300 | 293 | ||||||
Sabine Pass Liquefaction LLC | 15 | 14 | ||||||
SandRidge Energy, Inc. | 90 | 21 | ||||||
Sanjel Corp. 144A | 450 | 239 | ||||||
Seitel, Inc. | 470 | 397 | ||||||
YPF SA RegS | 120 | 122 | ||||||
|
| |||||||
3,344 | ||||||||
|
| |||||||
Financials—3.6% | ||||||||
Ardshinbank CJSC via Dilijan Finance BV 144A | 200 | 197 | ||||||
Banco do Brasil SA RegS | 200 | 108 | ||||||
Credit Acceptance Corp. | 40 | 40 | ||||||
Credit Acceptance Corp. 144A | 10 | 10 | ||||||
Earls Thirteen Ltd. 144A | 147 | 147 | ||||||
Genworth Holdings, Inc. | 10 | 10 | ||||||
7.625%, 9/24/21 | 25 | 23 | ||||||
6.500%, 6/15/34 | 15 | 11 | ||||||
6.150%, 11/15/66(2) | 25 | 11 | ||||||
Global Cash Access, Inc. 144A | 425 | 394 | ||||||
Greektown Holdings LLC/Greektown Mothership Corp. 144A | 374 | 382 |
See Notes to Financial Statements.
31
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
Financials—continued | ||||||||||
Kennedy-Wilson, Inc. | $ | 35 | $ 35 | |||||||
Ocwen Financial Corp. 144A 7.125%, 5/15/19(3) | 40 | 37 | ||||||||
|
| |||||||||
1,405 | ||||||||||
|
| |||||||||
Health Care—0.4% | ||||||||||
Aurora Diagnostics Holdings / Aurora Diagnostics Financing, Inc. | 65 | 53 | ||||||||
Concordia Healthcare Corp. 144A | 50 | 44 | ||||||||
Immucor, Inc. | 5 | 5 | ||||||||
Kindred Healthcare, Inc. | 50 | 52 | ||||||||
|
| |||||||||
154 | ||||||||||
|
| |||||||||
Industrials—7.0% | ||||||||||
Cenveo Corp. 144A | 25 | 22 | ||||||||
8.500%, 9/15/22(3) | 105 | 78 | ||||||||
Gol LuxCo SA RegS | 200 | 106 | ||||||||
Harland Clarke Holdings Corp. 144A | 85 | 72 | ||||||||
Lansing Trade Group LLC / Lansing Finance Co., Inc. 144A | 583 | 563 | ||||||||
Michael Baker International LLC / CDL Acquisition Co., Inc. 144A | 362 | 342 | ||||||||
Monitronics International, Inc. | 160 | 140 | ||||||||
Navigator Holdings Ltd. 144A | 472 | 488 | ||||||||
OAS Finance, Ltd. RegS | 400 | 36 | ||||||||
OAS Investments GmbH RegS | 400 | 32 | ||||||||
PAR VALUE | VALUE | |||||||||
Industrials—continued | ||||||||||
Optimas OE Solutions Holding LLC / Optimas OE Solutions, Inc. 144A | $ | 45 | $ 43 | |||||||
ServiceMaster Co., LLC (The) | 50 | 51 | ||||||||
Tervita Corp. 144A | 442 | 327 | ||||||||
Titan International, Inc. | 519 | 441 | ||||||||
|
| |||||||||
2,741 | ||||||||||
|
| |||||||||
Information Technology—1.0% | ||||||||||
Advanced Micro Devices, Inc. | 118 | 91 | ||||||||
7.750%, 8/1/20 | 30 | 22 | ||||||||
7.000%, 7/1/24 | 140 | 99 | ||||||||
Aegis Merger Sub, Inc. 144A | 35 | 36 | ||||||||
BMC Software Finance, Inc. 144A | 95 | 74 | ||||||||
Boxer Parent Co., Inc. PIK 144A | 85 | 61 | ||||||||
|
| |||||||||
383 | ||||||||||
|
| |||||||||
Materials—5.1% | ||||||||||
Aruba Investments, Inc. 144A | 35 | 35 | ||||||||
Cimento Tupi SA 144A | 60 | 16 | ||||||||
Cimento Tupi SA RegS | 41 | 11 | ||||||||
Cornerstone Chemical Co. 144A | 90 | 91 | ||||||||
FMG Resources August 2006 Property Ltd. 144A | 130 | 130 | ||||||||
Gold Fields Orogen Holding BVI Ltd. RegS | 200 | 163 | ||||||||
Hexion, Inc. | 60 | 51 | ||||||||
10.000%, 4/15/20 | 45 | 43 | ||||||||
IAMGOLD Corp. 144A | 115 | 87 |
PAR VALUE | VALUE | |||||||
Materials—continued | ||||||||
Metinvest BV RegS | $ | 200 | $ 127 | |||||
NTRP Via Interpipe, Ltd. | 200 | 64 | ||||||
Optima Specialty Steel, Inc. 144A | 812 | 727 | ||||||
Petra Diamonds US Treasury PLC 144A | 200 | 184 | ||||||
Rain CII Carbon LLC / CII Carbon Corp. 144A 8.000%, 12/1/18(3) | 20 | 17 | ||||||
8.250%, 1/15/21(3) | 145 | 122 | ||||||
Signode Industrial Group Lux SA/Signode Industrial Group US, Inc. 144A | 110 | 104 | ||||||
|
| |||||||
1,972 | ||||||||
|
| |||||||
Telecommunication Services—5.7% | ||||||||
Avanti Communications Group PLC 144A | 892 | 798 | ||||||
Axtel SAB de CV RegS | 70 | 72 | ||||||
Digicel Ltd. RegS | 200 | 181 | ||||||
Frontier Communications Corp. | 50 | 45 | ||||||
Frontier Communications Corp. 144A | 15 | 16 | ||||||
10.500%, 9/15/22(3) | 15 | 16 | ||||||
11.000%, 9/15/25(3) | 20 | 21 | ||||||
Intelsat Luxembourg SA | 90 | 54 | ||||||
Neptune Finco Corp. 144A | 55 | 59 | ||||||
Sprint Capital Corp. | 70 | 58 | ||||||
8.750%, 3/15/32 | 60 | 54 | ||||||
Sprint Corp. | 15 | 13 | ||||||
7.625%, 2/15/25 | 45 | 40 |
See Notes to Financial Statements.
32
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
Telecommunication Services—continued | ||||||||||
Trilogy International Partners LLC / Trilogy International Finance, Inc. 144A | $ | 790 | $ 781 | |||||||
|
| |||||||||
2,208 | ||||||||||
|
| |||||||||
Utilities—0.9% | ||||||||||
Dynegy, Inc. | 60 | 61 | ||||||||
7.625%, 11/1/24 | 35 | 35 | ||||||||
GenOn Americas Generation LLC | 125 | 94 | ||||||||
Illinois Power Generating Co. | 35 | 28 | ||||||||
Terraform Global Operating LLC 144A | 140 | 126 | ||||||||
|
| |||||||||
344 | ||||||||||
TOTAL CORPORATE BONDS (Identified Cost $17,936) | 15,611 | |||||||||
LOAN AGREEMENTS—9.8% | ||||||||||
Consumer Discretionary—3.0% | ||||||||||
Adria Topco B.V. | 1 | 1 | ||||||||
AMF Bowling Centers, Inc. Term Loan B | 50 | 49 | ||||||||
Ascena Retail Group, Inc. Tranche B | 65 | 63 | ||||||||
Caesars Entertainment Operating Company, Inc. (fka Harrah’s Operating Company, Inc.), Term Loan B-6 | 55 | 51 | ||||||||
Gymboree Corp., The | 85 | 55 | ||||||||
iHeartCommunications, Inc. (fka Clear Channel Communications, Inc.) Tranche D | 190 | 160 | ||||||||
Indra Holdings Corp. First Lien | 33 | 32 | ||||||||
Mashantucket Peqout, Term Loan A | 150 | 113 |
PAR VALUE | VALUE | |||||||||
Consumer Discretionary—continued | ||||||||||
MediArena Acquisition B.V. (fka AP NMT Acquisition B.V.) First Lien Term Loan B | $ | 58 | $ 55 | |||||||
Mohegan Tribal Gaming Authority Term Loan B | 39 | 39 | ||||||||
Nine West Holdings, Inc. | 15 | 13 | ||||||||
6.250%, 1/8/20 | 70 | 45 | ||||||||
Red Lobster Management LLC First Lien | 74 | 74 | ||||||||
SK Spice S.A.R.L, Term Loan B | 35 | 38 | ||||||||
Spencer Gifts LLC (Spirit Halloween Superstores LLC) Second Lien | 23 | 23 | ||||||||
Toys ’R’ US (Canada) Ltd. Tranche A-1 | 38 | 38 | ||||||||
Toys ’R’ US-Delaware, Inc. Term Loan B-4 | 109 | 96 | ||||||||
Toys ’R’ US-Delaware, Inc. Tranche A-1 | 47 | 47 | ||||||||
Tribune Publishing Co. | 100 | 95 | ||||||||
Wilton Brands LLC (fka Wilton Brands, Inc.) Tranche B | 97 | 95 | ||||||||
|
| |||||||||
1,182 | ||||||||||
|
| |||||||||
Consumer Staples—0.7% | ||||||||||
North Atlantic Trading Co, Inc. First Lien | 273 | 271 | ||||||||
|
| |||||||||
Energy—0.6% | ||||||||||
KCA Deutag US Finance LLC (KCA Deutag GMBH) | 35 | 27 | ||||||||
PAR VALUE | VALUE | |||||||
Energy—continued | ||||||||
Longview Power, LLC Term Loan B Advance | $ | 105 | $ 103 | |||||
Murray Energy Corp., Term Loan B-2 | 100 | 65 | ||||||
Preferred Proppants, LLC | 79 | 47 | ||||||
|
| |||||||
242 | ||||||||
|
| |||||||
Financials—1.4% | ||||||||
Alinta Energy Finance Pty Limited Delayed Draw | 3 | 3 | ||||||
Alinta Energy Finance Pty Limited, Term Loan B | 47 | 47 | ||||||
Omnitracs, LLC (Coronado Holdings, LLC), Second Lien | 442 | 431 | ||||||
Walter Investment Management Corp., Tranche B | 53 | 48 | ||||||
|
| |||||||
529 | ||||||||
|
| |||||||
Health Care—1.3% | ||||||||
American Pacific Corp. | 232 | 231 | ||||||
Lantheus Medical Imaging | 60 | 56 | ||||||
Millennium Health, LLC (fka Millennium Laboratories, LLC) Tranche B | 54 | 20 | ||||||
New MMI, Inc., Term Loan B | 104 | 96 | ||||||
Onex Carestream Finance LP, Second Lien | 105 | 99 | ||||||
|
| |||||||
502 | ||||||||
|
| |||||||
Industrials—0.3% | ||||||||
Koosharem, LLC | 69 | 68 |
See Notes to Financial Statements.
33
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||
Industrials—continued | ||||||||
Photonis Technologies | $ | 34 | $ 33 | |||||
|
| |||||||
101 | ||||||||
|
| |||||||
Information Technology—1.3% | ||||||||
BMC Software Finance, Inc. | 48 | 43 | ||||||
GTCR Valor Companies, Inc. First Lien | 54 | 53 | ||||||
Lanyon Solutions, Inc. (Lanyon, Inc.) Second Lien | 440 | 418 | ||||||
|
| |||||||
514 | ||||||||
|
| |||||||
Materials—0.3% | ||||||||
Albaugh, LLC | 70 | 70 | ||||||
Styrolution US Holding LLC First Lien Tranche B-1 | 50 | 50 | ||||||
|
| |||||||
120 | ||||||||
|
| |||||||
Utilities—0.9% | ||||||||
Empire Generating Co, LLC Advance Term Loan B | 75 | 67 | ||||||
Empire Generating Co, LLC Advance Term Loan C | 5 | 5 | ||||||
Moxie Patriot LLC Construction B-1 Advances | 75 | 71 | ||||||
Panda Temple Power, LLC Advance | 55 | 49 | ||||||
Texas Competitive Electric Holdings Company, LLC (TXU) 2014 Term Loan | 405 | 131 | ||||||
PAR VALUE | VALUE | |||||||||
Utilities—continued | ||||||||||
Texas Competitive Electric Holdings Company, LLC (TXU) 2017 Term Loan | $ | 90 | $ 31 | |||||||
|
| |||||||||
354 | ||||||||||
TOTAL LOAN AGREEMENTS (Identified Cost $4,372) | 3,815 | |||||||||
CONVERTIBLE BONDS—0.5% | ||||||||||
Consumer Discretionary—0.2% | ||||||||||
Liberty Interactive LLC | 147 | 88 | ||||||||
|
| |||||||||
Energy—0.0% | ||||||||||
Alpha Natural Resources, Inc. | 40 | 1 | ||||||||
|
| |||||||||
Financials—0.3% | ||||||||||
Bank of New York Mellon Luxembourg SA/The | 200 | EUR | 122 | |||||||
TOTAL CONVERTIBLE BONDS (Identified Cost $310) | 211 | |||||||||
SHARES | ||||||||||
PREFERRED STOCK—0.1% | ||||||||||
Financials—0.1% | ||||||||||
Capital One Financial Corp. Series B | 402 | 11 | ||||||||
Regions Financial Corp. Series A | 394 | 10 | ||||||||
|
| |||||||||
21 | ||||||||||
TOTAL PREFERRED STOCK (Identified Cost $19) | 21 | |||||||||
COMMON STOCKS—9.9% | ||||||||||
Consumer Discretionary—1.0% | ||||||||||
Grendene SA | 5,300 | 25 | ||||||||
Kohl’s Corp. | 1,082 | 50 | ||||||||
Pearson PLC | 1,529 | 20 | ||||||||
RTL Group SA | 641 | 55 | ||||||||
Sands China Ltd. | 20,800 | 75 | ||||||||
Societe Television Francaise 1 | 2,634 | 34 |
SHARES | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
Viacom, Inc. Class B | 997 | $ 49 | ||||||
Vivendi SA | 3,361 | 81 | ||||||
|
| |||||||
389 | ||||||||
|
| |||||||
Consumer Staples—0.4% | ||||||||
Ambev SA | 5,000 | 25 | ||||||
Asaleo Care, Ltd. | 34,249 | 43 | ||||||
Natura Cosmeticos SA | 3,300 | 19 | ||||||
Procter & Gamble Co. (The) | 970 | 74 | ||||||
|
| |||||||
161 | ||||||||
|
| |||||||
Energy—2.1% | ||||||||
Amec Foster Wheeler PLC | 2,726 | 30 | ||||||
China Shenhua Energy Co. Ltd. | 13,000 | 22 | ||||||
ConocoPhillips | 2,173 | 116 | ||||||
Eni SpA | 2,980 | 49 | ||||||
EnLink Midstream LLC | 187 | 4 | ||||||
Exterran Holdings, Inc. | 1,218 | 26 | ||||||
Gaslog Ltd. | 2,048 | 24 | ||||||
Kinder Morgan, Inc. | 5,911 | 162 | ||||||
Occidental Petroleum Corp. | 550 | 41 | ||||||
Phillips 66 | 255 | 23 | ||||||
SemGroup Corp. Class A | 1,388 | 63 | ||||||
Targa Resources Corp. | 1,236 | 70 | ||||||
Total SA | 1,784 | 86 | ||||||
TransCanada Corp. | 481 | 16 | ||||||
Williams Cos, Inc. (The) | 2,443 | 96 | ||||||
|
| |||||||
828 | ||||||||
|
| |||||||
Financials—2.2% | ||||||||
Agricultural | 182,000 | 74 | ||||||
Alaris Royalty Corp. | 2,223 | 47 | ||||||
Artisan Partners Asset Management, Inc. | 1,337 | 51 | ||||||
AXA SA | 2,663 | 71 | ||||||
Banco do Brasil SA | 7,600 | 32 | ||||||
BOC Hong Kong Holdings, Ltd. | 10,500 | 34 | ||||||
Cembra Money Bank AG | 843 | 50 | ||||||
China Construction | 93,000 | 67 | ||||||
Industrial & Commercial Bank of China Ltd. | 37,000 | 24 | ||||||
Krung Thai Bank PCL | 67,800 | 33 | ||||||
PacWest Bancorp | 3,101 | 140 |
See Notes to Financial Statements.
34
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
SHARES | VALUE | |||||||
Financials—continued | ||||||||
People’s United | 4,204 | $ | 67 | |||||
Pruksa Real Estate | 29,900 | 24 | ||||||
Swedbank AB, Class A | 2,792 | 64 | ||||||
UBM PLC | 6,632 | 52 | ||||||
UNIQA Insurance | 4,313 | 40 | ||||||
|
| |||||||
870 | ||||||||
|
| |||||||
Health Care—0.2% |
| |||||||
Pfizer, Inc. | 1,895 | 64 | ||||||
|
| |||||||
Industrials—0.7% |
| |||||||
Eaton Corp. PLC | 690 | 39 | ||||||
Macquarie | 1,602 | 127 | ||||||
Rexel SA | 2,705 | 37 | ||||||
Spotless Group | 20,904 | 32 | ||||||
Yumeshin Holdings | 4,800 | 28 | ||||||
|
| |||||||
263 | ||||||||
|
| |||||||
Information Technology—1.5% | ||||||||
Chicony Electronics | 11,060 | 26 | ||||||
Cisco Systems, Inc. | 4,079 | 118 | ||||||
Hewlett-Packard Co. | 1,719 | 21 | ||||||
Hon Hai Precision | 13,650 | 36 | ||||||
Maxim Integrated | 1,238 | 51 | ||||||
QUALCOMM, Inc. | 945 | 56 | ||||||
Radiant | 12,000 | 37 | ||||||
Seagate Technology | 821 | 31 | ||||||
Siliconware Precision | 16,373 | 110 | ||||||
Taiwan Semiconductor | 4,322 | 95 | ||||||
|
| |||||||
581 | ||||||||
|
| |||||||
Materials—0.3% | ||||||||
Anglo American PLC | 5,442 | 46 | ||||||
International Paper Co. | 1,192 | 51 | ||||||
|
| |||||||
97 | ||||||||
|
|
SHARES | VALUE | |||||||
Telecommunication Services—0.9% | ||||||||
Bezeq The Israeli | 39,288 | $ | 84 | |||||
Mobile Telesystems | 6,335 | 44 | ||||||
Telenor ASA | 3,044 | 57 | ||||||
Verizon | 850 | 40 | ||||||
Vodacom Group Ltd. | 6,244 | 68 | ||||||
Vodafone Group PLC | 20,449 | 68 | ||||||
|
| |||||||
361 | ||||||||
|
| |||||||
Utilities—0.6% |
| |||||||
DUET Group | 23,770 | 40 | ||||||
Huaneng Power | 22,000 | 24 | ||||||
Pattern Energy Group, Inc. | 1,894 | 44 | ||||||
Pennon Group PLC | 1,707 | 21 | ||||||
Snam SpA | 7,230 | 38 | ||||||
TerraForm Global, Inc. Class A(12) | 10,351 | 79 | ||||||
|
| |||||||
246 | ||||||||
| ||||||||
TOTAL COMMON STOCKS |
| 3,860 | ||||||
| ||||||||
MASTER LIMITED PARTNERSHIPS—12.5% |
| |||||||
Energy—0.3% |
| |||||||
Columbia Pipeline | 1,828 | 25 | ||||||
Golar LNG Partners LP | 215 | 4 | ||||||
Tallgrass Energy | 1,277 | 55 | ||||||
Teekay Offshore | 47 | 1 | ||||||
VTTI Energy Partners LP | 1,723 | 34 | ||||||
|
| |||||||
119 | ||||||||
|
| |||||||
Gas-Distribution—0.1% | ||||||||
AmeriGas Partners LP | 734 | 31 | ||||||
|
| |||||||
Gas-Transportation—0.1% | ||||||||
PBF Logistics LP | 1,111 | 23 | ||||||
Western Gas Equity Partners LP | 534 | 23 | ||||||
|
| |||||||
46 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services—0.0% | ||||||||
USA Compression | 18 | — | (13) | |||||
|
|
SHARES | VALUE | |||||||
Oil Components-Exploration and Production— |
| |||||||
Antero Midstream | 2,946 | $ | 70 | |||||
EQT GP Holdings LP | 512 | 14 | ||||||
Summit Midstream | 3,852 | 72 | ||||||
|
| |||||||
156 | ||||||||
|
| |||||||
Oil-Field Services—0.6% | ||||||||
CrossAmerica | 3,134 | 79 | ||||||
Exterran Partners LP | 5,159 | 103 | ||||||
Rice Midstream | 4,741 | 65 | ||||||
|
| |||||||
247 | ||||||||
|
| |||||||
Pipelines—10.9% | ||||||||
Boardwalk Pipeline | 2,770 | 36 | ||||||
Buckeye Partners LP | 4,617 | 313 | ||||||
Cheniere Energy | 2,283 | 64 | ||||||
Cone Midstream | 710 | 7 | ||||||
Crestwood Equity | 4,449 | 13 | ||||||
DCP Midstream | 2,135 | 61 | ||||||
Dominion Midstream | 1,037 | 34 | ||||||
Enbridge Energy | 40 | 1 | ||||||
Energy Transfer Equity | 16,494 | 355 | ||||||
Energy Transfer | 11,627 | 513 | ||||||
Enterprise Products | 27,309 | 755 | ||||||
EQT Midstream | 1,381 | 102 | ||||||
Genesis Energy LP | 1,408 | 57 | ||||||
Magellan Midstream | 5,079 | 324 | ||||||
MarkWest Energy | 4,013 | 175 | ||||||
MPLX LP | 688 | 27 | ||||||
NGL Energy Partners | 5,017 | 93 | ||||||
NuStar Energy LP | 1,997 | 101 | ||||||
ONEOK Partners LP | 2,673 | 85 | ||||||
PennTex Midstream | 1,959 | 35 | ||||||
Plains All American | 10,682 | 339 |
See Notes to Financial Statements.
35
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
SHARES | VALUE | |||||||
Pipelines—continued | ||||||||
Plains GP Holdings LP Class A | 4,264 | $ 66 | ||||||
Shell Midstream Partners LP(14) | 3,566 | 122 | ||||||
Sunoco Logistics Partners LP | 2,464 | 72 | ||||||
Tallgrass Energy GP LP | 1,031 | 25 | ||||||
Targa Resources Partners LP | 3,249 | 97 | ||||||
Tesoro Logistics LP | 4,048 | 227 | ||||||
Williams Partners LP | 3,955 | 134 | ||||||
| ||||||||
4,233 | ||||||||
| ||||||||
Transportation-Marine—0.1% | ||||||||
Teekay LNG Partners Ltd. | 1,831 | 46 | ||||||
| ||||||||
TOTAL MASTER LIMITED PARTNERSHIPS | ||||||||
(Identified Cost $5,872) | 4,878 | |||||||
| ||||||||
REAL ESTATE INVESTMENT TRUSTS—14.1% | ||||||||
Apartments—2.7% | ||||||||
American Campus Communities, Inc. | 2,851 | 116 | ||||||
AvalonBay Communities, Inc. | 1,515 | 265 | ||||||
Camden Property Trust | 3,261 | 240 | ||||||
Equity Residential | 5,392 | 417 | ||||||
| ||||||||
1,038 | ||||||||
| ||||||||
Diversified—0.8% | ||||||||
American Assets Trust, Inc. | 408 | 17 | ||||||
DuPont Fabros Technology, Inc. | 1,302 | 42 | ||||||
Fibra Uno Administracion SA de CV | 17,900 | 39 | ||||||
Lexington Realty Trust | 3,856 | 34 | ||||||
Vornado Realty Trust | 1,893 | 191 | ||||||
| ||||||||
323 | ||||||||
| ||||||||
Freestanding—0.2% | ||||||||
Spirit Realty Capital, Inc. | 6,439 | 66 | ||||||
| ||||||||
Health Care—1.0% | ||||||||
Care Capital Properties, Inc. | 1,234 | 41 | ||||||
Medical Properties Trust, Inc. | 6,158 | 70 | ||||||
National Health Investors, Inc. | 528 | 31 | ||||||
Senior Housing Properties Trust | 2,563 | 39 |
SHARES | VALUE | |||||||
Health Care—continued | ||||||||
Ventas, Inc. | 2,132 | $ 114 | ||||||
Welltower, Inc. | 1,700 | 110 | ||||||
| ||||||||
405 | ||||||||
| ||||||||
Industrial—0.6% | ||||||||
Prologis, Inc. | 5,056 | 216 | ||||||
| ||||||||
Infrastructure—1.3% | ||||||||
American Tower Corp. | 4,968 | 508 | ||||||
| ||||||||
Lodging/Resort—1.0% | ||||||||
Host Hotels & Resorts, Inc. | 3,569 | 62 | ||||||
LaSalle Hotel Properties | 6,691 | 197 | ||||||
RLJ Lodging Trust | 3,119 | 78 | ||||||
Sunstone Hotel Investors, Inc. | 4,691 | 68 | ||||||
| ||||||||
405 | ||||||||
| ||||||||
Mixed—0.3% | ||||||||
Duke Realty Corp. | 5,134 | 106 | ||||||
| ||||||||
Mortgage—0.3% | ||||||||
Blackstone Mortgage Trust, Inc. Class A | 3,721 | 102 | ||||||
| ||||||||
Office—1.5% | ||||||||
BioMed Realty Trust, Inc. | 984 | 23 | ||||||
Boston Properties, Inc. | 1,739 | 219 | ||||||
Columbia Property Trust, Inc. | 1,561 | 39 | ||||||
Corporate Office Properties Trust | 2,853 | 66 | ||||||
Hudson Pacific Properties, Inc. | 1,718 | 49 | ||||||
New York REIT, Inc. | 4,759 | 54 | ||||||
Paramount Group, Inc. | 3,755 | 67 | ||||||
SL Green Realty Corp. | 612 | 72 | ||||||
| ||||||||
589 | ||||||||
| ||||||||
Regional Malls—2.4% | ||||||||
CBL & Associates Properties, Inc. | 7,259 | 106 | ||||||
General Growth Properties, Inc. | 2,387 | 69 | ||||||
Simon Property Group, Inc. | 3,181 | 641 | ||||||
Taubman Centers, Inc. | 1,718 | 132 | ||||||
| ||||||||
948 | ||||||||
| ||||||||
Self Storage—0.8% | ||||||||
CubeSmart | 2,396 | 67 |
SHARES | VALUE | |||||
Self Storage—continued | ||||||
Public Storage | 1,127 | $ 258 | ||||
| ||||||
325 | ||||||
| ||||||
Shopping Centers—0.7% | ||||||
Acadia Realty Trust | 796 | 26 | ||||
Brixmor Property Group, Inc. | 2,613 | 67 | ||||
DDR Corp. | 4,211 | 71 | ||||
Ramco-Gershenson Properties Trust | 2,472 | 42 | ||||
Retail Properties of America, Inc. Class A | 2,760 | 41 | ||||
WP GLIMCHER, Inc. | 3,288 | 38 | ||||
| ||||||
285 | ||||||
| ||||||
Timber—0.4% | ||||||
Weyerhaeuser Co. | 5,841 | 171 | ||||
| ||||||
Warehouse/Industrial—0.1% | ||||||
EastGroup Properties, Inc. | 306 | 17 | ||||
| ||||||
TOTAL REAL ESTATE INVESTMENT TRUSTS | ||||||
(Identified Cost $5,243) | 5,504 | |||||
| ||||||
EXCHANGE-TRADED FUNDS—0.1% | ||||||
Exchange Traded Funds—0.1% | ||||||
iShares MSCI Mexico Capped ETF(15) | 990 | 54 | ||||
| ||||||
TOTAL EXCHANGE-TRADED FUNDS | ||||||
(Identified Cost $59) | 54 | |||||
| ||||||
CONTRACTS | ||||||
PURCHASED SWAPTIONS—0.0% | ||||||
Put Swaptions—0.0% | ||||||
10-Year USD Interest Rate Swap Expiring 03/14/16 Strike price $1.45(16) | 1,500 | 13 | ||||
| ||||||
TOTAL PURCHASED SWAPTIONS | ||||||
(Identified Cost $15) | 13 | |||||
| ||||||
TOTAL LONG TERM INVESTMENTS — 91.9% | ||||||
(Identified Cost $40,326) | 35,792 | |||||
|
See Notes to Financial Statements.
36
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
SHARES | VALUE | |||||||
SHORT-TERM INVESTMENTS—6.7% | ||||||||
Money Market Mutual Funds—6.7% | ||||||||
BlackRock Liquidity Funds TempFund Portfolio - Institutional Shares (Seven-day effective yield 0.120%) | 2,614,287 | $ 2,614 | ||||||
| ||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||
(Identified Cost $2,614) | 2,614 | |||||||
| ||||||||
TOTAL INVESTMENTS, BEFORE SECURITIES SOLD SHORT — 98.6% |
| |||||||
(Identified Cost $42,940) | 38,406 | (1) | ||||||
| ||||||||
SECURITIES SOLD SHORT—(2.2)% | ||||||||
Exchange Traded Funds—(2.2)% | ||||||||
Energy Select Sector SPDR Fund(15)(17) | (607 | ) | $ (41 | ) | ||||
SPDR S&P 500 ETF Trust(15)(17) | (3,756 | ) | (781 | ) | ||||
SPDR S&P Oil & Gas Exploration & Production ETF(15)(17) | (834 | ) | (31 | ) | ||||
|
| |||||||
(853 | ) | |||||||
| ||||||||
TOTAL SECURITIES SOLD SHORT |
| |||||||
(Proceeds $(875)) | (853 | )(1) | ||||||
| ||||||||
TOTAL INVESTMENTS NET OF SECURITIES SOLD SHORT — 96.4% |
| |||||||
(Identified Cost $42,065) | 37,553 | |||||||
Other assets and liabilities, |
| 1,401 | ||||||
|
| |||||||
NET ASSETS — 100.0% | $38,954 | |||||||
|
|
Footnote Legend: | ||||
(1) | Federal Income Tax Information: For tax information at October 31, 2015, see Note 11 Federal Income Tax Information in the Notes to Financial Statements.
| |||
(2) | Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015.
| |||
(3) | 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 October 31, 2015, these securities amounted to a value of $9,546 or 24.5% of net assets.
| |||
(4) | Regulation S security. Security is offered and sold outside of the United States, therefore, it is exempt from registration with the SEC under |
rules 903 and 904 of the Securities Act of 1933.
| ||||
(5) | This note was issued for the sole purpose of funding a loan agreement between the issuer and the borrower. As the credit risk for this security lies solely with the borrower, the name represented here is that of the borrower.
| |||
(6) | Security in default.
| |||
(7) | 86% of the income received was in cash and 14% in PIK.
| |||
(8) | Illiquid security.
| |||
(9) | 100% of the income received was in cash.
| |||
(10) | Security in default, interest payments are being received during the bankruptcy proceedings.
| |||
(11) | This loan will settle after October 31, 2015, at which time the interest rate, based on the London Interbank Offered Rate (“LIBOR”) and the agreed upon spread on trade date, will be known.
| |||
(12) | Non-income producing.
| |||
(13) | Amount is less than $500.
| |||
(14) | All or a portion segregated as collateral for securities sold short.
| |||
(15) | These Funds are public funds and the prospectus and annual reports are publicly available.
| |||
(16) | Strike price not reported in thousands.
| |||
(17) | The Fund is contractually responsible to the lender for any dividends payable and interest accrued on securities while those securities are in a short position. These dividends and interest are recorded as an expense of the Fund. |
Abbreviations: | ||||
ADR | American Depositary Receipt | |||
CBT | Chicago Board of Trade | |||
CLO | Collateralized Loan Obligation | |||
ETF | Exchange Traded Fund | |||
LLC | Limited Liability Company | |||
LP | Limited Partnership | |||
PIK | Payment in Kind | |||
PLC | Public Limited Company | |||
REIT | Real Estate Investment Trusts | |||
S&P | Standard & Poor’s | |||
SPDR | Standard & Poor’s Depositary Receipt |
Foreign Currencies:
BRL | Brazilian Real | |
EUR | European Currency Unit | |
INR | Indian Rupee | |
USD | United States Dollar |
Country Weightings (Unaudited)† |
| |||
United States | 71 | % | ||
United Kingdom | 3 | |||
Canada | 3 | |||
Luxembourg | 2 | |||
Argentina | 2 | |||
Cayman Islands | 1 | |||
Marshall Islands | 1 | |||
Netherlands | 1 | |||
Mexico | 1 | |||
Other | 15 | |||
Total | 100 | % | ||
See Notes to Financial Statements.
37
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
Futures contracts as of October 31, 2015 were as follows:
Issue | Expiration | Contracts Purchased/(Sold) | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||
U.S. 5 Year Treasury Note (CBT) | January 2016 | (14) | $ (1,677) | $ (7) | ||||||||||
Total | $ (7) |
Forward foreign currency exchange contracts as of October 31, 2015 were as follows:
Currency Purchased | Value | Currency Sold | Value | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||
INR | 16,342 | USD | 250 | JPMorgan Chase Bank N.A. | 12/11/15 | $ (2) | ||||||||
INR | 5,264 | USD | 80 | JPMorgan Chase Bank N.A. | 12/11/15 | — (a) | ||||||||
USD | 70 | EUR | 62 | The Bank Of New York Mellon | 12/15/15 | 2 | ||||||||
USD | 8 | EUR | 7 | The Bank Of New York Mellon | 12/15/15 | — (a) | ||||||||
USD | 154 | EUR | 136 | JPMorgan Chase Bank N.A. | 3/16/16 | 4 | ||||||||
USD | 298 | EUR | 265 | JPMorgan Chase Bank N.A. | 4/06/16 | 6 | ||||||||
USD | 364 | EUR | 330 | JPMorgan Chase Bank N.A. | 7/25/16 | (1) | ||||||||
USD | 51 | EUR | 46 | JPMorgan Chase Bank N.A. | 7/25/16 | — (a) | ||||||||
Total | $ 9 |
Footnote Legend:
(a) | Amount is less than $500. |
Over-the-counter credit default swap- buy protection(1) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Pay Rate | Expiration Date | Notional Amount(2) | Value | Premiums Paid | Unrealized Appreciation (Depreciation) | |||||||||||||||
Mitsui O.S.K. Lines, Ltd. | JPMorgan Chase Bank N.A. | 1% | 12/20/20 | 17,000 | JPY | $ 3 | $ $4 | $ $(1 | ) | |||||||||||||
Standard Euro Finance Corp. | JPMorgan Chase Bank N.A. | 1% | 12/20/20 | 260 | EUR | 15 | 27 | (12 | ) | |||||||||||||
Total | $18 | $ 31 | $ (13 | ) | ||||||||||||||||||
|
|
|
|
|
|
Over-the-counter credit default swap- sell protection(3) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Receive Rate | Expiration Date | Notional Amount(2) | Value | Premiums (Received) | Unrealized (Depreciation) | |||||||||||
Standard Euro Finance Corp. | JPMorgan Chase Bank N.A. | 1% | 12/20/20 | 260 EUR | $(1 | ) | $(6) | $5 | ||||||||||
Total | $(1 | ) | $(6) | $5 | ||||||||||||||
|
|
|
|
(1) If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying investments comprising the referenced index or (ii) receive a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
(2) The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
(3) If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying investments comprising the referenced index or (ii) pay a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
See Notes to Financial Statements.
38
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
The table that follows shows the undiscounted maximum potential payment by the Fund related to selling credit protection in credit default swaps:
Type of Reference Asset of which the Fund Sold Protection | Total Maximum Potential Payments for Selling Credit Protection (Undiscounted) | Amount Recoverable* | Reference Asset Rating Range** | |||||||||||
Standard Euro Finance Corp. | 260 EUR | $ — | A+ |
* | The Fund has no amounts recoverable from related purchased protection. In addition, the Fund has no recourse provisions under the credit derivatives and holds collateral which can offset or reduce potential payments under a triggering event. |
** | The period end reference asset security ratings, as rated by any rating organization, are included in the equivalent Standard & Poor’s rating category. The reference asset rating represents the likelihood of a potential credit event on the reference asset which would result in a related payment by the Fund. |
Over-the-counter total return swap outstanding as of October 31, 2015 were as follows:
Reference Entity | Floating Rate(a) | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||||
iBoxx Liquid High Yield Index | 3-Month LIBOR | JPMorgan Chase Bank N.A. | 12/20/15 | 688 | USD | $ (6) | $ — | $ (6) | ||||||||||||||||||||||||
Total | $ (6) | $ — | $ (6) | |||||||||||||||||||||||||||||
|
|
|
Footnote Legend:
(a) | The Fund pays the floating rate (+/- a spread) and receives the total return of the reference entity. |
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||
Assets: | ||||||||||||||
Debt Securities: | ||||||||||||||
Foreign Government Securities | $ 1,172 | $ — | $ 998 | $174 | ||||||||||
Municipal Bonds | 293 | — | 293 | — | ||||||||||
Mortgaged-Backed Securities | 30 | — | 30 | — | ||||||||||
Asset-Backed Securities | 330 | — | 330 | — | ||||||||||
Corporate Bonds | 15,611 | — | 15,464 | 147 | ||||||||||
Loan Agreements | 3,815 | — | 3,743 | 72 | ||||||||||
Convertible Bonds | 211 | — | 211 | — | ||||||||||
Equity Securities: | ||||||||||||||
Preferred Stock | 21 | 21 | — | — | ||||||||||
Common Stocks | 3,860 | 3,241 | 619 | — | ||||||||||
Exchange-Traded Funds | 54 | 54 | — | — | ||||||||||
Master Limited Partnerships | 4,878 | 4,878 | — | — | ||||||||||
Real Estate Investment Trusts | 5,504 | 5,504 | — | — | ||||||||||
Purchased Swaptions | 13 | — | 13 | — | ||||||||||
Short-Term Investments | 2,614 | 2,614 | — | — | ||||||||||
Forward Foreign Currency Exchange Contracts | 12 | — | 12 | — | ||||||||||
Over-the-Counter Credit Default Swap | 18 | — | 18 | — | ||||||||||
|
|
|
| |||||||||||
Total Assets | 38,436 | 16,312 | 21,731 | 393 | ||||||||||
|
|
|
|
See Notes to Financial Statements.
39
Table of Contents
VIRTUS ALTERNATIVE INCOME SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Concluded)
OCTOBER 31, 2015
($ are reported in thousands)
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||
Liabilities: | ||||||||||||||
Securities Sold Short | $(853) | $(853) | $ — | $ — | ||||||||||
Futures Contracts | (7) | (7) | — | — | ||||||||||
Forward Foreign Currency Exchange Contracts | (3) | — | (3) | — | ||||||||||
Over-the-Counter Credit Default Swap | (1) | — | (1) | — | ||||||||||
Over-the-Counter Total Return Swap | (6) | — | (6) | — | ||||||||||
|
|
|
| |||||||||||
Total Liabilities | $(870) | $(860) | $(10) | $ — | ||||||||||
|
|
|
|
Securities held by the Fund with an end of period value of $339 were transferred from Level 1 to Level 2 based on our valuation procedures for non-US securities. (See Note 2B in the Notes to Financial Statements.)
The following is a reconciliation of assets of the Fund for Level 3 investments which significant unobservable inputs were used to determine fair value:
Total | Foreign Government Securities | Corporate Bonds | Loan Agreement | |||||||||||||
Investments in Securities | ||||||||||||||||
Balance as of October 31, 2014 | $ 386 | $ 237 | $149 | $ — | ||||||||||||
Accrued discount/(premium) | — (a) | — (a) | — | — (a) | ||||||||||||
Realized gain (loss) | — | — | — | — | ||||||||||||
Change in unrealized appreciation (depreciation) (b) | (69) | (63) | 1 | (7) | ||||||||||||
Purchases | 79 | — | — | 79 | ||||||||||||
Sales | — | — | — | — | ||||||||||||
Transfers into Level 3 (c) | — | — | — | — | ||||||||||||
Transfers from Level 3 (c) | — | — | — | — | ||||||||||||
Paydowns | (3) | — | (3) | — | ||||||||||||
|
|
|
|
| ||||||||||||
Balance as of October 31, 2015 | $ 393 | $ 174 (d) | $ 147 (d) | $ 72 (d) | ||||||||||||
|
|
|
|
|
Footnote Legend:
(a) | Amount is less than $500. |
(b) | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. The change in unrealized appreciation (depreciation) on investments still held as of October 31, 2015 was $(69). |
(c) | “Transfers into and/or from” represent the ending value as of October 31, 2015, for any investment security where a change in the pricing level occurred from the beginning to the end of the period. |
(d) | The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of such Level 3 investments. |
None of the securities in this table are internally fair valued.
See Notes to Financial Statements.
40
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||||
U.S. GOVERNMENT SECURITIES—21.0% | ||||||||||
Agency—2.0% | ||||||||||
FHLB | ||||||||||
0.400%, 6/17/16 | $ | 100 | $ 100 | |||||||
0.310%, 11/7/16(2) | 500 | 500 | ||||||||
|
| |||||||||
600 | ||||||||||
|
| |||||||||
Non-Agency—19.0% | ||||||||||
United States Treasury | 300 | 300 | ||||||||
United States Treasury Inflation Indexed Bonds | 4,171 | 4,072 | ||||||||
1.375%, 2/15/44 | 1,023 | 1,062 | ||||||||
United States Treasury Note/Bond | 300 | 299 | ||||||||
0.750%, 4/15/18 | 100 | 100 | ||||||||
|
| |||||||||
5,833 | ||||||||||
| ||||||||||
TOTAL U.S. GOVERNMENT SECURITIES |
| |||||||||
(Identified Cost $6,474) |
| 6,433 | ||||||||
| ||||||||||
MUNICIPAL BONDS—0.6% | ||||||||||
New Jersey—0.2% | ||||||||||
Tobacco Settlement | 60 | 48 | ||||||||
|
| |||||||||
Puerto Rico—0.2% | ||||||||||
Commonwealth of | 5 | 3 | ||||||||
5.125%, 7/1/37 | 35 | 22 | ||||||||
5.250%, 7/1/37 | 35 | 22 | ||||||||
5.000%, 7/1/41 | 5 | 3 | ||||||||
Puerto Rico Sales Tax | 5 | 3 | ||||||||
0.000%, 8/1/54 | 210 | 14 | ||||||||
|
| |||||||||
67 | ||||||||||
|
| |||||||||
Texas—0.2% | ||||||||||
Texas Public Finance | 65 | 65 | ||||||||
| ||||||||||
TOTAL MUNICIPAL BONDS |
| |||||||||
(Identified Cost $185) | 180 | |||||||||
| ||||||||||
PAR VALUE | VALUE | |||||||||
MORTGAGED-BACKED SECURITIES—0.1% | ||||||||||
Non-Agency—0.1% | ||||||||||
Great Wolf Trust | $ | 20 | $ 20 | |||||||
| ||||||||||
TOTAL MORTGAGED-BACKED SECURITIES | ||||||||||
(Identified Cost $20) |
| 20 | ||||||||
| ||||||||||
ASSET-BACKED SECURITIES—0.3% | ||||||||||
Cutwater Ltd. CLO | 100 | 95 | ||||||||
| ||||||||||
TOTAL ASSET-BACKED SECURITIES | ||||||||||
(Identified Cost $94) | 95 | |||||||||
| ||||||||||
CORPORATE BONDS—11.7% | ||||||||||
Communications—0.0% | ||||||||||
Altice US Finance SA | 10 | 10 | ||||||||
|
| |||||||||
Consumer Discretionary—3.8% | ||||||||||
APX Group, Inc. | 15 | 15 | ||||||||
8.750%, 12/1/20 | 105 | 87 | ||||||||
Bon-Ton Department | 45 | 26 | ||||||||
Caesars Entertainment | 140 | 113 | ||||||||
9.000%, 2/15/20(4) | 70 | 57 | ||||||||
Chester Downs & | 85 | 64 | ||||||||
Claire’s Stores, Inc. | 62 | 25 | ||||||||
Claire’s Stores, Inc. | 40 | 33 | ||||||||
7.750%, 6/1/20(3) | 10 | 3 | ||||||||
Cumulus Media | 35 | 23 | ||||||||
DISH DBS Corp. | 15 | 14 | ||||||||
Guitar Center, Inc. | 35 | 33 | ||||||||
9.625%, 4/15/20(3) | 105 | 88 | ||||||||
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
iHeartCommunications, Inc. | $ | 20 | $ 11 | |||||
9.000%, 3/1/21 | 20 | 17 | ||||||
iHeartCommunications, Inc. PIK | 21 | 9 | ||||||
JC Penney Corp., Inc. | 35 | 32 | ||||||
McClatchy Co. (The) | 35 | 34 | ||||||
Mohegan Tribal Gaming Authority | 110 | 114 | ||||||
Nine West Holdings, Inc. 144A | 95 | 53 | ||||||
Radio One, Inc. 144A | 45 | 37 | ||||||
Scientific Games | 45 | 40 | ||||||
Shingle Springs Tribal | 75 | 79 | ||||||
Sirius XM Radio, Inc. | 65 | 67 | ||||||
Time Warner Cable, Inc. | 10 | 10 | ||||||
5.500%, 9/1/41 | 10 | 9 | ||||||
Toys R Us, Inc. | 50 | 41 | ||||||
7.375%, 10/15/18 | 60 | 40 | ||||||
Yum! Brands, Inc. | 10 | 9 | ||||||
|
| |||||||
1,183 | ||||||||
|
| |||||||
Consumer Staples—0.6% | ||||||||
New Albertson’s, Inc. | 100 | 99 | ||||||
7.450%, 8/1/29 | 10 | 10 | ||||||
8.700%, 5/1/30 | 5 | 5 | ||||||
8.000%, 5/1/31 | 10 | 10 | ||||||
Rite Aid Corp. 144A | 30 | 32 | ||||||
6.875%, 12/15/28(3) | 15 | 18 | ||||||
|
| |||||||
174 | ||||||||
|
|
See Notes to Financial Statements.
41
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR | ||||||||
VALUE | VALUE | |||||||
Energy—2.1% | ||||||||
Alpha Natural | $ | 15 | $ 1 | |||||
6.250%, 6/1/21(4) | 15 | 1 | ||||||
Basic Energy Services, | 30 | 12 | ||||||
7.750%, 10/15/22 | 20 | 7 | ||||||
Citgo Holding, Inc. | 40 | 40 | ||||||
Energy Transfer Equity | 60 | 58 | ||||||
EXCO Resources, Inc. | 15 | 4 | ||||||
Jupiter Resources, | 60 | 31 | ||||||
Kosmos Energy, Ltd. | 25 | 22 | ||||||
MEG Energy Corp. | 40 | 35 | ||||||
Memorial Production | 20 | 13 | ||||||
6.875%, 8/1/22 | 30 | 19 | ||||||
Murray Energy Corp. | 50 | 14 | ||||||
Pacific Drilling SA | 50 | 27 | ||||||
Parker Drilling Co. | 55 | 43 | ||||||
PBF Logistics LP / PBF | 55 | 51 | ||||||
Rockies Express | 45 | 46 | ||||||
Sabine Pass | 190 | 186 | ||||||
Sabine Pass | 10 | 10 |
PAR | ||||||||
VALUE | VALUE | |||||||
Energy—continued | ||||||||
SandRidge Energy, | $ | 60 | $ 14 | |||||
|
| |||||||
|
634 |
| ||||||
|
| |||||||
Financials—0.9% | ||||||||
Credit Acceptance | 30 | 30 | ||||||
Credit Acceptance | 5 | 5 | ||||||
Earls Thirteen Ltd. | 147 | 147 | ||||||
Genworth Holdings, | 5 | 5 | ||||||
7.625%, 9/24/21 | 25 | 23 | ||||||
6.500%, 6/15/34 | 5 | 4 | ||||||
6.150%, 11/15/66(2) | 20 | 9 | ||||||
Kennedy-Wilson, Inc. | 25 | 25 | ||||||
Ocwen Financial Corp. | 35 | 32 | ||||||
|
| |||||||
|
280 |
| ||||||
|
| |||||||
Health Care—0.4% | ||||||||
Aurora Diagnostics | 45 | 36 | ||||||
Concordia Healthcare | 30 | 26 | ||||||
Immucor, Inc. | 20 | 21 | ||||||
Kindred Healthcare, | 30 | 31 | ||||||
|
| |||||||
|
114 |
| ||||||
|
| |||||||
Industrials—0.9% | ||||||||
Cenveo Corp. 144A | 20 | 18 | ||||||
8.500%, 9/15/22(3) | 65 | 48 | ||||||
Harland Clarke | 55 | 47 | ||||||
Monitronics | 105 | 91 |
PAR | ||||||||
VALUE | VALUE | |||||||
Industrials—continued | ||||||||
Optimas OE Solutions | $ | 30 | $ 29 | |||||
ServiceMaster Co., | 50 | 51 | ||||||
|
| |||||||
|
284 |
| ||||||
|
| |||||||
Information Technology—0.7% | ||||||||
Advanced Micro Devices, Inc. 7.750%, 8/1/20 | 30 | 22 | ||||||
7.000%, 7/1/24 | 90 | 63 | ||||||
Aegis Merger Sub, Inc. 144A 10.250%, 2/15/23(3) | 20 | 21 | ||||||
BMC Software Finance, Inc. 144A | 80 | 62 | ||||||
Boxer Parent Co., Inc. PIK 144A | 55 | 40 | ||||||
|
| |||||||
|
208 |
| ||||||
|
| |||||||
Materials—1.1% | ||||||||
Aruba Investments, | 20 | 20 | ||||||
Cornerstone Chemical | 60 | 61 | ||||||
Hexion, Inc. | 35 | 30 | ||||||
10.000%, 4/15/20 | 30 | 29 | ||||||
IAMGOLD Corp. | 70 | 53 | ||||||
Rain CII Carbon LLC / | 20 | 17 | ||||||
8.250%, 1/15/21(3) | 90 | 76 | ||||||
Signode Industrial | 70 | 66 | ||||||
|
| |||||||
|
352 |
| ||||||
|
| |||||||
Telecommunication Services—0.9% | ||||||||
Frontier Communications Corp. | 30 | 27 |
See Notes to Financial Statements.
42
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||
Telecommunication Services—continued | ||||||||
Frontier Communications Corp. 144A | $ 10 | $ 10 | ||||||
10.500%, 9/15/22(3) | 10 | 10 | ||||||
11.000%, 9/15/25(3) | 15 | 16 | ||||||
Intelsat Luxembourg | 50 | 30 | ||||||
Neptune Finco Corp. | 55 | 59 | ||||||
Sprint Capital Corp. | 40 | 36 | ||||||
Sprint Corp. | 45 | 40 | ||||||
7.625%, 2/15/25 | 45 | 40 | ||||||
| ||||||||
268 | ||||||||
| ||||||||
Utilities—0.3% | ||||||||
Dynegy, Inc. | 40 | 41 | ||||||
7.625%, 11/1/24 | 25 | 25 | ||||||
Illinois Power | 20 | 16 | ||||||
| ||||||||
82 | ||||||||
| ||||||||
TOTAL CORPORATE BONDS | ||||||||
(Identified Cost $4,038) | 3,589 | |||||||
| ||||||||
COMMODITY LINKED NOTES—2.0% | ||||||||
Financials—2.0% | ||||||||
Canadian Imperial | 385 | 284 | ||||||
Royal Bank of Canada | 320 | 316 | ||||||
| ||||||||
600 | ||||||||
| ||||||||
TOTAL COMMODITY LINKED NOTES | ||||||||
(Identified Cost $705) | 600 | |||||||
| ||||||||
CONVERTIBLE BONDS—0.2% | ||||||||
Consumer Discretionary—0.2% | ||||||||
Liberty Interactive LLC | 100 | 59 | ||||||
| ||||||||
Energy—0.0% | ||||||||
Alpha Natural | 25 | 1 | ||||||
| ||||||||
TOTAL CONVERTIBLE BONDS | ||||||||
(Identified Cost $90) | 60 | |||||||
|
PAR VALUE | VALUE | |||||||
LOAN AGREEMENTS—5.3% | ||||||||
Consumer Discretionary—2.5% | ||||||||
Adria Topco B.V. | $ 1 | $ 1 | ||||||
AMF Bowling Centers, | 30 | 29 | ||||||
Ascena Retail Group, | 45 | 43 | ||||||
Caesars Entertainment | 35 | 32 | ||||||
Gymboree Corp., The | 60 | 39 | ||||||
iHeartCommunications, Inc. (fka Clear Channel | 120 | 101 | ||||||
Indra Holdings Corp. | 19 | 18 | ||||||
Mashantucket Peqout, | 98 | 74 | ||||||
MediArena Acquisition | 35 | 34 | ||||||
Mohegan Tribal | 30 | 29 | ||||||
Nine West Holdings, | 10 | 9 | ||||||
6.250%, 1/8/20 | 50 | 32 | ||||||
Red Lobster | 50 | 50 | ||||||
SK Spice S.A.R.L, | 20 | 22 | ||||||
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
Spencer Gifts LLC | $ 16 | $ 16 | ||||||
Toys ’R’ US (Canada) | 25 | 25 | ||||||
Toys ’R’ US-Delaware, | 70 | 61 | ||||||
Toys ’R’ US-Delaware, | 30 | 31 | ||||||
Tribune Publishing Co. | 67 | 63 | ||||||
Wilton Brands LLC | 62 | 60 | ||||||
| ||||||||
769 | ||||||||
| ||||||||
Energy—0.6% | ||||||||
KCA Deutag US | 20 | 15 | ||||||
Longview Power, LLC | 65 | 64 | ||||||
Murray Energy Corp., | 100 | 65 | ||||||
Preferred Proppants, | 54 | 32 | ||||||
| ||||||||
176 | ||||||||
| ||||||||
Financials—0.1% | ||||||||
Walter Investment | 34 | 31 | ||||||
| ||||||||
Health Care—0.7% | ||||||||
CCS Intermediate | 64 | 60 | ||||||
Millennium Health, | 35 | 13 |
See Notes to Financial Statements.
43
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||||
Health Care—continued |
| |||||||||
New MMI, Inc., Term | $ | 70 | $ 64 | |||||||
Onex Carestream | 70 | 65 | ||||||||
|
| |||||||||
202 | ||||||||||
|
| |||||||||
Industrials—0.2% | ||||||||||
Koosharem, LLC | 49 | 48 | ||||||||
Photonis Technologies | 25 | 24 | ||||||||
|
| |||||||||
72 | ||||||||||
|
| |||||||||
Information Technology—0.2% | ||||||||||
BMC Software | 29 | 26 | ||||||||
GTCR Valor | 35 | 34 | ||||||||
|
| |||||||||
60 | ||||||||||
|
| |||||||||
Materials—0.3% | ||||||||||
Albaugh, LLC | 47 | 47 | ||||||||
Styrolution U.S. | 35 | 35 | ||||||||
|
| |||||||||
82 | ||||||||||
|
| |||||||||
Utilities—0.7% | ||||||||||
Empire Generating Co, | 47 | 42 | ||||||||
Empire Generating Co, | 3 | 3 | ||||||||
Moxie Patriot LLC | 50 | 48 | ||||||||
Panda Temple Power, | 35 | 31 |
PAR VALUE | VALUE | |||||||||
Utilities—continued |
| |||||||||
Texas Competitive | $ | 275 | $ 89 | |||||||
Texas Competitive | 55 | 19 | ||||||||
|
| |||||||||
232 | ||||||||||
| ||||||||||
TOTAL LOAN AGREEMENTS |
| |||||||||
(Identified Cost $1,968) |
| 1,624 | ||||||||
| ||||||||||
SHARES | ||||||||||
COMMON STOCKS—17.1% | ||||||||||
Consumer Discretionary—1.4% | ||||||||||
Eutelsat | 6,701 | 221 | ||||||||
SES SA | 7,502 | 222 | ||||||||
|
| |||||||||
443 | ||||||||||
|
| |||||||||
Energy—1.1% | ||||||||||
EnLink Midstream LLC | 176 | 4 | ||||||||
Exterran Holdings, Inc. | 1,089 | 24 | ||||||||
Gaslog Ltd. | 1,831 | 21 | ||||||||
Kinder Morgan, Inc. | 1,423 | 39 | ||||||||
Phillips 66 | 240 | 21 | ||||||||
SemGroup Corp. | 1,242 | 57 | ||||||||
Targa Resources Corp. | 1,105 | 63 | ||||||||
TransCanada Corp. | 430 | 14 | ||||||||
Williams Cos, Inc. | 2,184 | 86 | ||||||||
|
| |||||||||
329 | ||||||||||
|
| |||||||||
Industrials—7.4% | ||||||||||
Abertis | 13,385 | 222 | ||||||||
Aeroports de Paris | 766 | 96 | ||||||||
ASTM SpA | 3,700 | 50 | ||||||||
Atlantia SpA | 13,434 | 372 | ||||||||
CSX Corp. | 10,631 | 287 | ||||||||
Flughafen Wien AG | 300 | 28 | ||||||||
Flughafen Zuerich AG | 36 | 27 | ||||||||
Fraport AG Frankfurt | 2,331 | 148 | ||||||||
Macquarie Atlas | 23,300 | 67 |
SHARES | VALUE | |||||||
Industrials—continued |
| |||||||
Macquarie | 1,432 | $ 114 | ||||||
Norfolk Southern Corp. | 2,845 | 228 | ||||||
Societa Iniziative | 6,700 | 77 | ||||||
Transurban Group | 26,312 | 195 | ||||||
Vinci SA | 5,300 | 358 | ||||||
|
| |||||||
2,269 | ||||||||
|
| |||||||
Utilities—7.2% | ||||||||
Ameren Corp. | 4,900 | 214 | ||||||
AusNet Services | 70,780 | 73 | ||||||
DUET Group | 138,826 | 233 | ||||||
Great Plains Energy, | 8,600 | 236 | ||||||
Hera SpA | 28,300 | 74 | ||||||
Pennon Group PLC | 16,653 | 208 | ||||||
PG&E Corp. | 1,700 | 91 | ||||||
REN - Redes | 8,800 | 27 | ||||||
SJW Corp. | 500 | 16 | ||||||
Snam SpA | 77,135 | 400 | ||||||
Spark Infrastructure | 85,400 | 126 | ||||||
Terna Rete Elettrica | 81,974 | 417 | ||||||
Toho Gas Co. Ltd. | 2,111 | 13 | ||||||
Tokyo Gas Co. Ltd. | 17,000 | 84 | ||||||
|
| |||||||
2,212 | ||||||||
| ||||||||
TOTAL COMMON STOCKS |
| |||||||
(Identified Cost $5,512) |
| 5,253 | ||||||
| ||||||||
MASTER LIMITED PARTNERSHIPS—14.3% | ||||||||
Energy—0.4% | ||||||||
Columbia Pipeline | 1,634 | 22 | ||||||
Golar LNG Partners LP | 203 | 4 | ||||||
Tallgrass Energy | 1,142 | 49 | ||||||
Teekay Offshore | 43 | 1 | ||||||
VTTI Energy Partners LP | 1,541 | 31 | ||||||
|
| |||||||
107 | ||||||||
|
| |||||||
Gas-Distribution—0.1% | ||||||||
AmeriGas Partners LP | 656 | 28 | ||||||
|
| |||||||
Gas-Transportation—0.1% | ||||||||
PBF Logistics LP | 993 | 21 |
See Notes to Financial Statements.
44
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||||
Gas-Transportation—continued |
| |||||||||
Western Gas Equity | 478 | $ | 21 | |||||||
|
| |||||||||
42 | ||||||||||
|
| |||||||||
Oil & Gas Equipment & Services—0.0% |
| |||||||||
USA Compression | 16 | — | (11) | |||||||
|
| |||||||||
Oil Components-Exploration and Production— 0.5% |
| |||||||||
Antero Midstream | 2,634 | 63 | ||||||||
EQT GP Holdings LP | 458 | 12 | ||||||||
Summit Midstream | 3,444 | 64 | ||||||||
|
| |||||||||
139 | ||||||||||
|
| |||||||||
Oil-Field Services—0.7% |
| |||||||||
CrossAmerica | 2,802 | 71 | ||||||||
Exterran Partners LP | 4,724 | 94 | ||||||||
Rice Midstream | 4,238 | 58 | ||||||||
|
| |||||||||
223 | ||||||||||
|
| |||||||||
Pipelines—12.4% |
| |||||||||
Boardwalk Pipeline | 2,478 | 32 | ||||||||
Buckeye Partners LP | 4,127 | 280 | ||||||||
Cheniere Energy | 2,041 | 57 | ||||||||
Cone Midstream | 635 | 6 | ||||||||
Crestwood Equity | 3,976 | 12 | ||||||||
DCP Midstream | 1,908 | 55 | ||||||||
Dominion Midstream | 927 | 30 | ||||||||
Enbridge Energy | 35 | 1 | ||||||||
Energy Transfer Equity | 14,748 | 318 | ||||||||
Energy Transfer | 10,649 | 470 | ||||||||
Enterprise Products | 24,477 | 676 | ||||||||
EQT Midstream | 1,235 | 92 | ||||||||
Genesis Energy LP | 1,258 | 51 | ||||||||
Magellan Midstream | 4,542 | 290 | ||||||||
MarkWest Energy | 3,666 | 160 | ||||||||
MPLX LP | 630 | 24 | ||||||||
NGL Energy | 4,485 | 83 |
SHARES | VALUE | |||||||||
Pipelines—continued |
| |||||||||
NuStar Energy LP | 1,785 | $ | 90 | |||||||
ONEOK Partners LP | 2,389 | 76 | ||||||||
PennTex Midstream | 1,752 | 31 | ||||||||
Plains All American | 9,640 | 306 | ||||||||
Plains GP Holdings LP Class A | 3,786 | 59 | ||||||||
Shell Midstream | 3,188 | 109 | ||||||||
Sunoco Logistics | 2,203 | 64 | ||||||||
Tallgrass Energy GP LP | 921 | 22 | ||||||||
Targa Resources | 2,906 | 87 | ||||||||
Tesoro Logistics LP | 3,618 | 203 | ||||||||
Williams Partners LP | 3,535 | 120 | ||||||||
|
| |||||||||
3,804 | ||||||||||
|
| |||||||||
Transportation-Marine—0.1% |
| |||||||||
Teekay LNG Partners Ltd. | 1,648 | 41 | ||||||||
| ||||||||||
TOTAL MASTER LIMITED PARTNERSHIPS |
| |||||||||
(Identified Cost $5,340) | 4,384 | |||||||||
| ||||||||||
REAL ESTATE INVESTMENT TRUSTS—20.1% |
| |||||||||
Apartments—4.1% |
| |||||||||
American Campus Communities, Inc. | 3,452 | 140 | ||||||||
AvalonBay Communities, Inc. | 1,819 | 318 | ||||||||
Camden Property Trust | 3,918 | 289 | ||||||||
Equity Residential | 6,478 | 501 | ||||||||
|
| |||||||||
1,248 | ||||||||||
|
| |||||||||
Diversified—1.0% |
| |||||||||
American Assets Trust, Inc. | 463 | 20 | ||||||||
DuPont Fabros Technology, Inc. | 1,564 | 50 | ||||||||
Vornado Realty Trust | 2,277 | 229 | ||||||||
|
| |||||||||
299 | ||||||||||
|
| |||||||||
Freestanding—0.2% |
| |||||||||
Spirit Realty Capital, Inc. | 7,745 | 79 | ||||||||
|
| |||||||||
Health Care—1.4% | ||||||||||
Care Capital Properties, Inc. | 1,470 | 48 | ||||||||
Medical Properties | 3,064 | 35 | ||||||||
National Health Investors, Inc. | 633 | 37 |
SHARES | VALUE | |||||||
Health Care—continued |
| |||||||
Senior Housing | 3,082 | $ | 47 | |||||
Ventas, Inc. | 2,550 | 137 | ||||||
Welltower, Inc. | 2,020 | 131 | ||||||
|
| |||||||
435 | ||||||||
|
| |||||||
Industrial—0.8% |
| |||||||
Prologis, Inc. | 6,065 | 259 | ||||||
|
| |||||||
Infrastructure—2.0% |
| |||||||
American Tower Corp. | 5,968 | 610 | ||||||
|
| |||||||
Lodging/Resort—1.3% |
| |||||||
Host Hotels & | 4,225 | 73 | ||||||
LaSalle Hotel | 5,052 | 149 | ||||||
RLJ Lodging Trust | 3,695 | 93 | ||||||
Sunstone Hotel | 5,900 | 85 | ||||||
|
| |||||||
400 | ||||||||
|
| |||||||
Mixed—0.4% |
| |||||||
Duke Realty Corp. | 6,436 | 133 | ||||||
|
| |||||||
Office—2.3% |
| |||||||
BioMed Realty Trust, Inc. | 1,180 | 28 | ||||||
Boston Properties, Inc. | 2,088 | 263 | ||||||
Columbia Property | 1,822 | 45 | ||||||
Corporate Office | 3,443 | 79 | ||||||
Hudson Pacific | 1,999 | 57 | ||||||
New York REIT, Inc. | 5,669 | 65 | ||||||
Paramount Group, Inc. | 4,493 | 80 | ||||||
SL Green Realty Corp. | 730 | 86 | ||||||
|
| |||||||
703 | ||||||||
|
| |||||||
Regional Malls—3.6% |
| |||||||
CBL & Associates | 6,342 | 93 | ||||||
General Growth | 2,848 | 82 | ||||||
Simon Property | 3,821 | 770 | ||||||
Taubman Centers, Inc. | 2,094 | 161 | ||||||
|
| |||||||
1,106 | ||||||||
|
| |||||||
Self Storage—1.3% |
| |||||||
CubeSmart | 2,880 | 80 | ||||||
Public Storage | 1,354 | 311 | ||||||
|
| |||||||
391 | ||||||||
|
|
See Notes to Financial Statements.
45
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||||
Shopping Centers—1.0% |
| |||||||||
Acadia Realty Trust | 932 | $ 31 | ||||||||
Brixmor Property Group, Inc. | 3,141 | 80 | ||||||||
DDR Corp. | 5,048 | 85 | ||||||||
Ramco-Gershenson Properties Trust | 2,980 | 50 | ||||||||
Retail Properties of America, Inc. Class A | 3,260 | 49 | ||||||||
|
| |||||||||
|
295 |
| ||||||||
|
| |||||||||
Timber—0.6% | ||||||||||
Weyerhaeuser Co. | 6,658 | 195 | ||||||||
|
| |||||||||
Warehouse/Industrial—0.1% |
| |||||||||
EastGroup Properties, Inc.
|
| 360
|
|
| 20
|
| ||||
| ||||||||||
TOTAL REAL ESTATE INVESTMENT TRUSTS |
| |||||||||
(Identified Cost $5,694) |
| 6,173 | ||||||||
| ||||||||||
TOTAL LONG TERM INVESTMENTS — 92.7% |
| |||||||||
(Identified Cost $30,120) |
| 28,411 | ||||||||
| ||||||||||
SHORT-TERM INVESTMENTS—5.5% |
| |||||||||
Money Market Mutual Funds—5.5% |
| |||||||||
BlackRock Liquidity Funds TempFund Portfolio - Institutional Shares (Seven-day effective yield 0.120%) | 1,696,292 | 1,696 | ||||||||
|
| |||||||||
| ||||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||||
(Identified Cost $1,696) |
| 1,696 | ||||||||
| ||||||||||
TOTAL INVESTMENTS, BEFORE SECURITIES SOLD SHORT — 98.2% |
| |||||||||
(Identified Cost $31,816) |
| 30,107 | (1) | |||||||
| ||||||||||
SECURITIES SOLD SHORT—(2.5)% |
| |||||||||
Exchange Traded Funds—(2.5)% |
| |||||||||
Energy Select Sector SPDR Fund(13)(14) | (542 | ) | (37 | ) | ||||||
SPDR S&P 500 ETF Trust(13)(14) | (3,358 | ) | (698 | ) | ||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
|
SHARES | VALUE | |||||||||
Exchange Traded Funds—continued |
| |||||||||
SPDR S&P Oil & Gas Exploration & Production | (745 | ) | $ | (28 | ) | |||||
|
| |||||||||
|
(763
|
)
| ||||||||
| ||||||||||
TOTAL SECURITIES SOLD SHORT |
| |||||||||
(Proceeds $(781)) |
| (763 | )(1) | |||||||
| ||||||||||
TOTAL INVESTMENTS NET OF SECURITIES SOLD SHORT — 95.7% |
| |||||||||
(Identified Cost $31,035) |
| $ | 29,344 | |||||||
Other assets and liabilities, |
| 1,326 | ||||||||
|
| |||||||||
NET ASSETS — 100.0% |
| $ | 30,670 | |||||||
|
| |||||||||
Footnote Legend: | ||||||||||
(1) Federal Income Tax Information: For tax information at October 31, 2015, see Note 11 Federal Income Tax Information in the Notes to Financial Statements.
(2) Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015.
(3) 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 October 31, 2015, these securities amounted to a value of $2,087 or 6.8% of net assets.
(4) Security in default.
(5) 86% of the income received was in cash and 14% in PIK.
(6) Illiquid security.
(7) 100% of the income received was in cash.
(8) Security in default, interest payments are being received during the bankruptcy proceedings.
(9) This loan will settle after October 31, 2015, at which time the interest rate, based on the London Interbank Offered Rate (“LIBOR”) and the agreed upon spread on trade date, will be known.
(10) All or a portion segregated as collateral for securities sold short.
(11) Amount is less than $500.
(12) Non-income producing.
(13) The Fund is contractually responsible to the lender for any dividends payable and interest accrued on securities while those securities are in a short position. These dividends and interest are recorded as an expense of the Fund.
(14) These Funds are public funds and the prospectus and annual reports are publicly available. |
|
Abbreviations: | ||||
CBT | Chicago Board of Trade | |||
CLO | Collateralized Loan Obligation | |||
ETF | Exchange Traded Fund | |||
FHLB | Federal Home Loan Bank | |||
LLC | Limited Liability Company | |||
LP | Limited Partnership | |||
PIK | Payment-in-Kind Security | |||
PLC | Public Limited Company | |||
REIT | Real Estate Investment Trust | |||
S&P | Standard & Poor’s | |||
SPDR | Standard & Poor’s Depositary Receipt | |||
Foreign Currencies: | ||||
USD | United States Dollar |
Country Weightings (Unaudited)† |
| |||
United States | 83 | % | ||
Italy | 5 | |||
Canada | 3 | |||
France | 2 | |||
Australia | 2 | |||
Luxembourg | 1 | |||
Other | 4 | |||
Total | 100 | % | ||
†% of total investments, net of securities sold short, as of October 31, 2015 |
See Notes to Financial Statements.
46
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
Futures contracts as of October 31, 2015 were as follows:
Issue | Expiration | Contracts Purchased/(Sold) | Notional Value | Unrealized Appreciation (Depreciation) | ||||
U.S. 5 Year Treasury Note (CBT) | January 2016 | (1) | $ (120) | $ —(a) | ||||
U.S. 10 Year Treasury Note (CBT) | December 2015 | (15) | (1,915) | —(a) | ||||
U.S. Ultra Bond (CBT) | December 2015 | (19) | (3,035) | 8 | ||||
Total | $ 8 |
Footnote Legend:
(a) Amount is less than $500.
Over-the-counter total return swap outstanding as of October 31, 2015 was as follows:
Reference Entity | Floating Rate(a) | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized (Depreciation) | |||||||||
iBoxx Liquid High Yield Index | 3-Month LIBOR | JPMorgan Chase Bank N.A. | 12/20/15 | $ 2 | USD | $ (4) | $ — | $ (4) | ||||||||
Total | $ (4) | $ — | $ (4) |
Footnote Legend:
(a) The Fund pays the floating rate (+/- a spread) and receives the total return of the reference entity.
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Assets: | ||||||||||||||||
Debt Securities: | ||||||||||||||||
U.S. Government Securities | $ 6,433 | $ — | $ 6,433 | $ — | ||||||||||||
Municipal Bonds | 180 | — | 180 | — | ||||||||||||
Mortgage-Backed Securities | 20 | — | 20 | — | ||||||||||||
Asset-Backed Securities | 95 | — | 95 | — | ||||||||||||
Corporate Bonds | 3,589 | — | 3,442 | 147 | ||||||||||||
Commodity Linked Notes | 600 | — | 600 | — | ||||||||||||
Convertible Bonds | 60 | — | 60 | — | ||||||||||||
Loan Agreements | 1,624 | — | 1,579 | 45 | ||||||||||||
Equity Securities: | ||||||||||||||||
Common Stocks | 5,253 | 4,462 | 791 | — | ||||||||||||
Master Limited Partnerships | 4,384 | 4,384 | — | — | ||||||||||||
Real Estate Investment Trusts | 6,173 | 6,173 | — | — | ||||||||||||
Short-Term Investments | 1,696 | 1,696 | — | — | ||||||||||||
Futures Contracts | 8 | 8 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 30,115 | 16,723 | 13,200 | 192 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Securities Sold Short | (763) | (763) | — | — | ||||||||||||
Futures Contracts | —(a) | — (a) | — | — | ||||||||||||
Over-the-Counter Total Return Swaps | (4) | — | (4) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | $ (767) | $ (763) | $ (4) | $ — | ||||||||||||
|
|
|
|
|
|
|
|
Footnote Legend:
(a) Amount is less than $500.
See Notes to Financial Statements.
47
Table of Contents
VIRTUS ALTERNATIVE INFLATION SOLUTION FUND
SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Concluded)
OCTOBER 31, 2015
($ reported in thousands)
Securities held by the Fund with an end of period value of $791 were transferred from Level 1 to Level 2 based on our valuation procedures for non-US securities. (See Note 2B in the Notes to Financial Statements.)
The following is a reconciliation of assets of the Fund for Level 3 investments which significant unobservable inputs were used to determine fair value.
Total | Corporate Bonds | Loan Agreements | ||||||||||
Investments in Securities | ||||||||||||
Balance as of October 31, 2014 | $149 | $ 149 | $ — | |||||||||
Accrued discount/(premium) | — (a) | — | — (a) | |||||||||
Realized gain (loss) | — (a) | — | — (a) | |||||||||
Change in unrealized appreciation (depreciation)(b) | (3) | 1 | (4) | |||||||||
Purchases | 49 | — | 49 | |||||||||
Sales | — (a) | — (a) | — | |||||||||
Transfers into Level 3(c) | — | — | — | |||||||||
Transfers from Level 3(c) | — | — | — | |||||||||
Paydowns | (3) | (3) | — | |||||||||
|
|
|
|
|
| |||||||
Balance as of October 31, 2015 | $192 | $147(d) | $ 45 (d) | |||||||||
|
|
|
|
|
|
Footnote Legend:
(a) | Amount is less than $500. |
(b) | Included in the related net change in unrealized appreciation (depreciation) in the Statement of Operations. The change in unrealized appreciation (depreciation) on investments still held as of October 31, 2015 was $(3). |
(c) | “Transfers into and/or from” represent the ending value as of October 31, 2015, for any investment security where a change in the pricing level occurred from the beginning to the end of the period. |
(d) | The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of such Level 3 investments. |
None of the securities in this table are internally fair valued.
See Notes to Financial Statements.
48
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||
FOREIGN GOVERNMENT SECURITIES—1.3% | ||||||||
Argentine Republic Government | 4,670 | EUR | $ 518 | |||||
Brazil Notas do Tesouro Nacional | 320 | BRL | 81 | |||||
Hellenic Republic | ||||||||
3.000%, 2/24/23(2) | 22 | EUR | 18 | |||||
3.000%, 2/24/24(2) | 22 | EUR | 17 | |||||
3.000%, 2/24/25(2) | 22 | EUR | 17 | |||||
3.000%, 2/24/26(2) | 22 | EUR | 17 | |||||
3.000%, 2/24/27(2) | 22 | EUR | 16 | |||||
3.000%, 2/24/28(2) | 22 | EUR | 16 | |||||
3.000%, 2/24/29(2) | 22 | EUR | 16 | |||||
3.000%, 2/24/30(2) | 22 | EUR | 15 | |||||
3.000%, 2/24/31(2) | 22 | EUR | 15 | |||||
3.000%, 2/24/32(2) | 22 | EUR | 15 | |||||
3.000%, 2/24/33(2) | 22 | EUR | 15 | |||||
3.000%, 2/24/34(2) | 22 | EUR | 15 | |||||
3.000%, 2/24/35(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/36(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/37(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/38(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/39(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/40(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/41(2) | 22 | EUR | 14 | |||||
3.000%, 2/24/42(2) | 22 | EUR | 14 | |||||
Kenya Treasury Bonds 144A | 250 | 174 | ||||||
Ukraine Railways via Shortline PLC RegS 9.500%, 5/21/18(4)(5)
|
| 200
|
| 162
| ||||
| ||||||||
TOTAL FOREIGN GOVERNMENT SECURITIES | ||||||||
(Identified Cost $1,287) |
| 1,239 | ||||||
| ||||||||
MUNICIPAL BONDS—0.3% | ||||||||
New Jersey—0.1% | ||||||||
Tobacco Settlement Financing Corp. Series 1-A | 60 | 48 | ||||||
| ||||||||
Puerto Rico—0.1% | ||||||||
Commonwealth of | 125 | 91 | ||||||
5.125%, 7/1/37 | 5 | 3 | ||||||
5.250%, 7/1/37 | 5 | 3 | ||||||
5.000%, 7/1/41 | 15 | 10 |
PAR VALUE | VALUE | |||||||||
Puerto Rico—continued | ||||||||||
Puerto Rico Sales Tax | $ | 10 | $ 6 | |||||||
0.000%, 8/1/54 | 230 | 15 | ||||||||
|
| |||||||||
128 | ||||||||||
|
| |||||||||
Texas—0.1% | ||||||||||
Texas Public Finance
|
| 100
|
|
| 99
|
| ||||
| ||||||||||
TOTAL MUNICIPAL BONDS |
| |||||||||
(Identified Cost $300) | 275 | |||||||||
| ||||||||||
MORTGAGED-BACKED SECURITIES—0.0% |
| |||||||||
Non-Agency—0.0% |
| |||||||||
Great Wolf Trust
|
| 35
|
|
| 34
|
| ||||
| ||||||||||
TOTAL MORTGAGED-BACKED SECURITIES |
| |||||||||
(Identified Cost $35) | 34 | |||||||||
| ||||||||||
ASSET-BACKED SECURITIES—0.3% | ||||||||||
Cutwater Ltd. CLO | 100 | 95 | ||||||||
THL Credit Wind River
|
| 250
|
|
| 235
|
| ||||
| ||||||||||
TOTAL ASSET-BACKED SECURITIES |
| |||||||||
(Identified Cost $336) | 330 | |||||||||
| ||||||||||
CORPORATE BONDS—18.3% |
| |||||||||
Communications—0.0% | ||||||||||
Altice US Finance SA | 15 | 14 | ||||||||
|
| |||||||||
Consumer Discretionary—3.1% | ||||||||||
APX Group, Inc. | 50 | 49 | ||||||||
8.750%, 12/1/20 | 160 | 133 | ||||||||
Bon-Ton Department | 125 | 72 | ||||||||
Caesars Entertainment | 10 | 8 | ||||||||
9.000%, 2/15/20(6) | 245 | 198 | ||||||||
9.000%, 2/15/20(6) | 100 | 81 |
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
Chester Downs & | $ | 1,135 | $ 857 | |||||
Claire’s Stores, Inc. | 110 | 45 | ||||||
Claire’s Stores, Inc. | 70 | 58 | ||||||
7.750%, 6/1/20(3) | 15 | 4 | ||||||
Cumulus Media | 65 | 43 | ||||||
DISH DBS Corp. | 10 | 9 | ||||||
5.875%, 11/15/24 | 20 | 19 | ||||||
Edcon Pty Ltd. RegS | 150 | 94 | ||||||
Grupo Famsa SAB de | 63 | 57 | ||||||
Guitar Center, Inc. | 65 | 61 | ||||||
9.625%, 4/15/20(3) | 135 | 113 | ||||||
iHeartCommunications, Inc. | 30 | 16 | ||||||
9.000%, 3/1/21 | 80 | 66 | ||||||
iHeartCommunications, Inc. PIK | 26 | 11 | ||||||
JC Penney Corp., Inc. | 15 | 15 | ||||||
5.650%, 6/1/20 | 40 | 37 | ||||||
McClatchy Co. (The) | 60 | 58 | ||||||
Mohegan Tribal | 215 | 223 | ||||||
Nine West Holdings, | 150 | 84 | ||||||
Radio One, Inc. 144A | 90 | 75 | ||||||
Scientific Games | 60 | 54 | ||||||
Scientific Games |
See Notes to Financial Statements.
49
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
7.000%, 1/1/22(3) | $ | 35 | $ 36 | |||||
Shingle Springs Tribal Gaming Authority 144A | 105 | 111 | ||||||
Sirius XM Radio, Inc. 144A | 85 | 87 | ||||||
Time Warner Cable, Inc. | 10 | 10 | ||||||
5.500%, 9/1/41 | 15 | 14 | ||||||
Toys R Us, Inc. | 65 | 53 | ||||||
7.375%, 10/15/18 | 90 | 60 | ||||||
Yum! Brands, Inc. | 25 | 22 | ||||||
5.350%, 11/1/43 | 5 | 4 | ||||||
| ||||||||
2,937 | ||||||||
| ||||||||
Consumer Staples—1.0% | ||||||||
Hema Bondco I BV 144A | 100 | 80 | ||||||
Kissner Milling Co., Ltd. 144A | 325 | 331 | ||||||
MHP SA RegS | 200 | 174 | ||||||
New Albertson’s, Inc. | 115 | 114 | ||||||
7.450%, 8/1/29 | 125 | 122 | ||||||
8.700%, 5/1/30 | 5 | 5 | ||||||
8.000%, 5/1/31 | 10 | 10 | ||||||
Rite Aid Corp. 144A | ||||||||
6.125%, 4/1/23(3) | 35 | 38 | ||||||
6.875%, 12/15/28(3) | 40 | 48 | ||||||
| ||||||||
922 | ||||||||
| ||||||||
Energy—3.7% | ||||||||
Alpha Natural Resources, Inc. | 25 | 1 | ||||||
6.250%, 6/1/21(6) | 15 | 1 | ||||||
Basic Energy Services, Inc. | 70 | 29 | ||||||
7.750%, 10/15/22 | 30 | 11 | ||||||
Berau Capital Resources Pte, Ltd. RegS | 100 | 30 | ||||||
Berau Coal Energy Tbk PT RegS | 200 | 61 |
PAR VALUE | VALUE | |||||||
Energy—continued | ||||||||
Bumi Capital Pte, Ltd. | $ | 300 | $ 58 | |||||
Bumi Investment Pte, Ltd. RegS | 885 | 173 | ||||||
Citgo Holding, Inc. 144A | 55 | 56 | ||||||
Energy Transfer Equity LP | 100 | 97 | ||||||
EXCO Resources, Inc. | 15 | 4 | ||||||
Fermaca Enterprises de | 245 | 236 | ||||||
Forbes Energy Services | 475 | 323 | ||||||
Jupiter Resources, Inc. | 110 | 58 | ||||||
Kosmos Energy, Ltd. 144A | 35 | 31 | ||||||
MEG Energy Corp. 144A | 70 | 61 | ||||||
Memorial Production | 35 | 24 | ||||||
6.875%, 8/1/22 | 45 | 29 | ||||||
Murray Energy Corp. 144A | 75 | 20 | ||||||
Pacific Drilling SA 144A | 50 | 27 | ||||||
Pacific Drilling V, Ltd. 144A | 562 | 385 | ||||||
Pacific Rubiales Energy | 100 | 38 | ||||||
Pacific Rubiales Energy | 100 | 44 | ||||||
Parker Drilling Co. | 100 | 77 | ||||||
PBF Logistics LP / PBF Logistics Finance |
PAR VALUE | VALUE | |||||
Energy—continued | ||||||
6.875%, 5/15/23(3) | $ | 85 | $ 79 | |||
Petrobras Global | 50 | 37 | ||||
Petroleos de | 623 | 352 | ||||
Petroleos de Venezuela SA RegS | 160 | 67 | ||||
Rockies Express | 105 | 107 | ||||
Sabine Pass Liquefaction LLC | 205 | 201 | ||||
Sabine Pass Liquefaction LLC 144A | 105 | 101 | ||||
SandRidge Energy, Inc. 7.500%, 2/15/23 | 90 | 21 | ||||
Sanjel Corp. 144A | 350 | 185 | ||||
Seitel, Inc. | 355 | 300 | ||||
YPF SA RegS | 132 | 134 | ||||
| ||||||
3,458 | ||||||
| ||||||
Financials—1.4% | ||||||
Ardshinbank CJSC via Dilijan Finance BV 144A | 200 | 197 | ||||
Banco do Brasil SA RegS 6.250%, 10/29/49(2)(4) | 200 | 108 | ||||
Credit Acceptance Corp. 6.125%, 2/15/21 | 50 | 50 | ||||
Credit Acceptance Corp. 144A | 10 | 10 | ||||
Earls Thirteen Ltd. 144A | 147 | 147 | ||||
Genworth Holdings, Inc. 7.200%, 2/15/21 | 5 | 5 | ||||
7.625%, 9/24/21 | 25 | 24 | ||||
6.500%, 6/15/34 | 45 | 33 | ||||
6.150%, 11/15/66(2) | 25 | 11 | ||||
Global Cash Access, |
See Notes to Financial Statements.
50
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||||
Financials—continued | ||||||||||
10.000%, 1/15/22(3) | $ | 650 | $ | 603 | ||||||
Kennedy-Wilson, Inc. | 40 | 40 | ||||||||
Ocwen Financial Corp. 144A | 60 | 55 | ||||||||
|
| |||||||||
|
1,283 |
| ||||||||
|
| |||||||||
Health Care—0.3% | ||||||||||
AMAG | 25 | 23 | ||||||||
Aurora Diagnostics | 50 | 41 | ||||||||
CHS/Community | 65 | 67 | ||||||||
Concordia Healthcare | 55 | 48 | ||||||||
Immucor, Inc. | 5 | 5 | ||||||||
Kindred Healthcare, Inc. | 50 | 52 | ||||||||
6.375%, 4/15/22 | 15 | 14 | ||||||||
|
| |||||||||
|
250 |
| ||||||||
|
| |||||||||
Industrials—2.7% | ||||||||||
Cenveo Corp. 144A 6.000%, 8/1/19(3) | 35 | 31 | ||||||||
8.500%, 9/15/22(3) | 125 | 93 | ||||||||
Gol LuxCo SA RegS 8.875%, 1/24/22(4) | 200 | 106 | ||||||||
Harland Clarke Holdings Corp. 144A | 95 | 81 | ||||||||
Lansing Trade Group LLC / Lansing Finance Co., Inc. 144A | 417 | 402 | ||||||||
Michael Baker International LLC / CDL Acquisition Co., Inc. 144A | 383 | 362 | ||||||||
Monitronics International, Inc. | 210 | 183 |
PAR VALUE | VALUE | |||||||||
Industrials—continued | ||||||||||
Navigator Holdings Ltd. 144A 9.000%, 12/18/17(3) | $ | 328 | $ | 339 | ||||||
OAS Finance, Ltd. RegS 8.000%, 7/2/21(4)(6) | 400 | 36 | ||||||||
OAS Investments GmbH RegS | 470 | 38 | ||||||||
Optimas OE Solutions Holding LLC / Optimas OE Solutions, Inc. 144A | 55 | 53 | ||||||||
ServiceMaster Co., LLC (The) | 50 | 51 | ||||||||
Tervita Corp. 144A 8.000%, 11/15/18(3) | 538 | 398 | ||||||||
Titan International, Inc. 6.875%, 10/1/20 | 431 | 366 | ||||||||
|
| |||||||||
|
2,539 |
| ||||||||
|
| |||||||||
Information Technology—0.5% | ||||||||||
Advanced Micro Devices, Inc. 6.750%, 3/1/19 | 133 | 103 | ||||||||
7.750%, 8/1/20 | 45 | 33 | ||||||||
7.000%, 7/1/24 | 120 | 85 | �� | |||||||
Aegis Merger Sub, Inc. 144A | 35 | 36 | ||||||||
BMC Software Finance, Inc. 144A | 120 | 93 | ||||||||
Boxer Parent Co., Inc. PIK 144A | 135 | 97 | ||||||||
|
| |||||||||
|
447 |
| ||||||||
|
| |||||||||
Materials—2.0% | ||||||||||
Aruba Investments, Inc. 144A 8.750%, 2/15/23(3) | 35 | 35 | ||||||||
Cimento Tupi SA 144A | 60 | 16 | ||||||||
Cimento Tupi SA RegS | 41 | 11 | ||||||||
Cornerstone Chemical Co. 144A | 115 | 117 | ||||||||
FMG Resources August 2006 Property Ltd. 144A | 140 | 139 |
PAR VALUE | VALUE | |||||||||
Materials—continued | ||||||||||
Gold Fields Orogen Holding BVI Ltd. RegS | $ | 200 | $ | 163 | ||||||
Hexion, Inc. | 55 | 47 | ||||||||
10.000%, 4/15/20 | 90 | 86 | ||||||||
IAMGOLD Corp. 144A | 115 | 87 | ||||||||
Metinvest BV RegS | 200 | 127 | ||||||||
NTRP Via Interpipe, Ltd. | 200 | 64 | ||||||||
Optima Specialty Steel, Inc. 144A | 631 | 565 | ||||||||
Petra Diamonds US Treasury PLC 144A | 200 | 184 | ||||||||
Rain CII Carbon LLC / CII Carbon Corp. 144A | 30 | 26 | ||||||||
8.250%, 1/15/21(3) | 160 | 135 | ||||||||
Signode Industrial Group Lux SA/Signode Industrial Group US, Inc. 144A | 145 | 137 | ||||||||
|
| |||||||||
|
1,939 |
| ||||||||
|
| |||||||||
Telecommunication Services—3.2% | ||||||||||
Avanti Communications Group PLC 144A | 958 | 857 | ||||||||
Axtel SAB de CV RegS | 75 | 77 | ||||||||
Digicel Ltd. RegS 6.000%, 4/15/21(4) | 200 | 181 | ||||||||
Frontier Communications Corp. | 45 | 40 | ||||||||
7.625%, 4/15/24 | 20 | 18 | ||||||||
Frontier Communications Corp. 144A | 15 | 16 | ||||||||
10.500%, 9/15/22(3) | 20 | 21 | ||||||||
11.000%, 9/15/25(3) | 20 | 21 | ||||||||
Intelsat Luxembourg SA | 700 | 625 | ||||||||
7.750%, 6/1/21 | 85 | 51 |
See Notes to Financial Statements.
51
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR | ||||||||||
VALUE | VALUE | |||||||||
Telecommunication Services—continued | ||||||||||
Neptune Finco Corp. 144A | $ | 55 | $ | 59 | ||||||
Sprint Capital Corp. | 70 | 58 | ||||||||
8.750%, 3/15/32 | 55 | 50 | ||||||||
Sprint Corp. | 55 | 48 | ||||||||
7.625%, 2/15/25 | 50 | 45 | ||||||||
Trilogy International Partners LLC / Trilogy International Finance, Inc. 144A | 845 | 835 | ||||||||
|
| |||||||||
|
3,002 |
| ||||||||
|
| |||||||||
Utilities—0.4% | ||||||||||
Dynegy, Inc. | 75 | 76 | ||||||||
7.625%, 11/1/24 | 25 | 25 | ||||||||
GenOn Americas Generation LLC | 100 | 79 | ||||||||
9.125%, 5/1/31 | 100 | 75 | ||||||||
Illinois Power Generating Co. | 35 | 28 | ||||||||
Terraform Global Operating LLC 144A | 150 | 135 | ||||||||
|
| |||||||||
|
418
|
| ||||||||
| ||||||||||
TOTAL CORPORATE BONDS (Identified Cost $19,483) |
| 17,209 | ||||||||
| ||||||||||
CONVERTIBLE BONDS—6.0% | ||||||||||
Consumer Discretionary—0.8% | ||||||||||
Ascent Capital Group, Inc. | 120 | 82 | ||||||||
Blucora, Inc. | 63 | 57 | ||||||||
Carriage Services, Inc. | 90 | 100 | ||||||||
JAKKS Pacific, Inc. 144A | 70 | 69 | ||||||||
K Hovnanian Enterprises, Inc. | 50 | 45 | ||||||||
LGI Homes, Inc. 144A | 65 | 93 | ||||||||
Liberty Interactive LLC | 47 | 28 | ||||||||
3.750%, 2/15/30 | 124 | 73 |
PAR | ||||||||||
VALUE | VALUE | |||||||||
Consumer Discretionary—continued | ||||||||||
MercadoLibre, Inc. | $ 30 | $ 31 | ||||||||
Navistar International Corp. | 33 | 23 | ||||||||
RAIT Financial Trust | 105 | 88 | ||||||||
WebMD Health Corp. | 49 | 51 | ||||||||
|
| |||||||||
|
740 |
| ||||||||
|
| |||||||||
Consumer Staples—0.2% | ||||||||||
Vector Group Ltd. | 150 | 173 | ||||||||
|
| |||||||||
Energy—0.2% | ||||||||||
Alon USA Energy, Inc. | 78 | 100 | ||||||||
Alpha Natural Resources, Inc. | 25 | 1 | ||||||||
4.875%, 12/15/20(6)(9) | 233 | 8 | ||||||||
Chesapeake Energy Corp. | 20 | 17 | ||||||||
Cobalt International Energy, Inc. | 71 | 46 | ||||||||
|
| |||||||||
|
172 |
| ||||||||
|
| |||||||||
Financials—1.8% | ||||||||||
American Residential Properties OP LP 144A 3.250%, 11/15/18(3)(9) | 100 | 100 | ||||||||
AmTrust Financial Services, Inc. | 70 | 69 | ||||||||
Apollo Commercial Real Estate Finance, Inc. | 60 | 60 | ||||||||
Bank of New York Mellon Luxembourg SA/The | 300 | EUR | 183 | |||||||
Colony Financial, Inc. REIT | 15 | 15 | ||||||||
Cowen Group, Inc. | 100 | 101 | ||||||||
Empire State Realty OP LP REIT 144A | 85 | 89 |
PAR | ||||||||||
VALUE | VALUE | |||||||||
Financials—continued | ||||||||||
Encore Capital Group, Inc. | $ 110 | $ 98 | ||||||||
Forest City Enterprises, Inc. | 85 | 93 | ||||||||
FXCM, Inc. | 108 | 74 | ||||||||
GPT Property Trust LP REIT 144A | 100 | 108 | ||||||||
IAS Operating Partnership LP REIT 144A | 80 | 76 | ||||||||
MGIC Investment Corp. | 68 | 85 | ||||||||
NorthStar Realty Europe Corp. 144A | 195 | 190 | ||||||||
PRA Group, Inc. | 45 | 48 | ||||||||
Redwood Trust, Inc. REIT | 34 | 32 | ||||||||
Resource Capital Corp. REIT | 38 | 36 | ||||||||
Restoration Hardware Holdings, Inc. 144A 0.000%, 6/15/19(3) | 23 | 24 | ||||||||
Spirit Realty Capital, Inc. | 95 | 91 | ||||||||
Starwood Property Trust, Inc. | 105 | 105 | ||||||||
4.550%, 3/1/18 | 15 | 15 | ||||||||
|
| |||||||||
|
1,692 |
| ||||||||
|
| |||||||||
Health Care—0.7% | ||||||||||
ANI Pharmaceuticals, Inc. | 84 | 81 | ||||||||
Endologix, Inc. | 11 | 11 | ||||||||
Exelixis, Inc. | 69 | 86 | ||||||||
Hologic, Inc. | 88 | 112 | ||||||||
Ironwood Pharmaceuticals, | 55 | 52 |
See Notes to Financial Statements.
52
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||||
Health Care—continued | ||||||||||
PDL BioPharma, Inc. | $ | 59 | $ 49 | |||||||
PTC Therapeutics, Inc. | 5 | 4 | ||||||||
Quidel Corp. | 85 | 80 | ||||||||
Sequenom, Inc. | 100 | 83 | ||||||||
Wright Medical Group, Inc. 144A | 109 | 103 | ||||||||
|
| |||||||||
|
661 |
| ||||||||
|
| |||||||||
Industrials—0.8% | ||||||||||
AAR Corp. Series B | 98 | 99 | ||||||||
Aegean Marine Petroleum Network, Inc. | 80 | 71 | ||||||||
Altra Industrial Motion Corp. | 115 | 128 | ||||||||
Atlas Air Worldwide Holdings, Inc. | 63 | 53 | ||||||||
Cenveo Corp. | 140 | 120 | ||||||||
Trinity Industries, Inc. | 179 | 232 | ||||||||
Wabash National Corp. | 30 | 36 | ||||||||
|
| |||||||||
|
739 |
| ||||||||
|
| |||||||||
Information Technology—0.9% | ||||||||||
Bottomline Technologies de, Inc. | 23 | 25 | ||||||||
BroadSoft, Inc. | 15 | 16 | ||||||||
BroadSoft, Inc. 144A | 74 | 75 | ||||||||
FireEye, Inc., Series B 144A | 39 | 33 | ||||||||
Integrated Device Technology, Inc. 144A | 68 | 71 | ||||||||
Intel Corp. | 86 | 109 | ||||||||
NetSuite, Inc. | 75 | 76 | ||||||||
PAR VALUE | VALUE | |||||||||
Information Technology—continued | ||||||||||
NXP Semiconductors NV 144A | $ 78 | $ 84 | ||||||||
ON Semiconductor Corp. | 14 | 17 | ||||||||
Photronics, Inc. | 76 | 79 | ||||||||
3.250%, 4/1/19(9) | 59 | 67 | ||||||||
Rovi Corp. 144A | 29 | 22 | ||||||||
TiVo, Inc. 144A | 62 | 63 | ||||||||
Violin Memory, Inc. 4.250%, 10/1/19(9) | 115 | 85 | ||||||||
Workday, Inc. | 55 | 63 | ||||||||
|
| |||||||||
|
885 |
| ||||||||
|
| |||||||||
Specialized—0.1% | ||||||||||
Starwood Waypoint Residential Trust | 90 | 88 | ||||||||
|
| |||||||||
Utilities—0.5% | ||||||||||
Dycom Industries, Inc. 144A | 78 | 81 | ||||||||
Green Plains, Inc. | 80 | 94 | ||||||||
Renewable Energy Group, Inc. | 90 | 75 | ||||||||
SolarCity Corp. | 44 | 36 | ||||||||
1.625%, 11/1/19(9) | 36 | 25 | ||||||||
Solazyme, Inc. | 190 | 113 | ||||||||
SunEdison, Inc. 144A | 69 | 36 | ||||||||
Theravance, Inc. | 58 | 42 | ||||||||
|
| |||||||||
|
502
|
| ||||||||
| ||||||||||
TOTAL CONVERTIBLE BONDS (Identified Cost $6,167) |
| 5,652 | ||||||||
| ||||||||||
LOAN AGREEMENTS—3.8% | ||||||||||
Consumer Discretionary—1.4% | ||||||||||
Adria Topco B.V. | 1 | 1 | ||||||||
AMF Bowling Centers, Inc. Term Loan B | 53 | 52 |
PAR VALUE | VALUE | |||||||||
Consumer Discretionary—continued | ||||||||||
Ascena Retail Group, Inc. Tranche B | $ 80 | $ 77 | ||||||||
Caesars Entertainment Operating Company, Inc. (fka Harrah’s Operating Company, Inc.), Term Loan B-6 | 55 | 51 | ||||||||
Gymboree Corp., The | 100 | 65 | ||||||||
iHeartCommunications, Inc. (fka Clear Channel Communications, Inc.) Tranche D | 175 | 147 | ||||||||
Indra Holdings Corp. First Lien | 24 | 23 | ||||||||
Mashantucket Peqout, Term Loan A | 185 | 140 | ||||||||
MediArena Acquisition B.V. (fka AP NMT Acquisition B.V.) First Lien Term Loan B | 74 | 70 | ||||||||
Mohegan Tribal Gaming Authority Term Loan B | 34 | 34 | ||||||||
Nine West Holdings, Inc. | 20 | 17 | ||||||||
6.250%, 1/8/20 | 110 | 71 | ||||||||
Red Lobster Management LLC First Lien | 89 | 89 | ||||||||
SK Spice S.A.R.L, Term Loan B | 40 | 44 | ||||||||
Spencer Gifts LLC (Spirit Halloween Superstores LLC) Second Lien | 28 | 28 | ||||||||
Toys ’R’ US (Canada) Ltd. Tranche A-1 | 47 | 47 | ||||||||
Toys ’R’ US-Delaware, | 139 | 122 |
See Notes to Financial Statements.
53
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
PAR VALUE | VALUE | |||||||||
Consumer Discretionary—continued |
| |||||||||
Toys ’R’ US-Delaware, Inc. Tranche A-1 | $ | 58 | $ 58 | |||||||
Tribune Publishing Co. | 116 | 110 | ||||||||
Wilton Brands LLC (fka Wilton Brands, Inc.) Tranche B | 104 | 101 | ||||||||
|
| |||||||||
|
1,347 |
| ||||||||
|
| |||||||||
Consumer Staples—0.2% |
| |||||||||
North Atlantic Trading Co, Inc. First Lien | 190 | 188 | ||||||||
|
| |||||||||
Energy—0.2% |
| |||||||||
KCA Deutag US Finance LLC (KCA Deutag GMBH) | 25 | 20 | ||||||||
Longview Power, LLC Term Loan B Advance | 95 | 93 | ||||||||
Murray Energy Corp., Term Loan B-2 | 100 | 65 | ||||||||
Preferred Proppants, LLC | 69 | 41 | ||||||||
|
| |||||||||
|
219 |
| ||||||||
|
| |||||||||
Financials—0.4% |
| |||||||||
Alinta Energy Finance Pty Limited Delayed Draw | 3 | 3 | ||||||||
Alinta Energy Finance Pty Limited, Term Loan B | 51 | 51 | ||||||||
Omnitracs, LLC (Coronado Holdings, LLC), Second Lien | 308 | 300 | ||||||||
Walter Investment Management Corp., Tranche | 58 | 53 | ||||||||
|
| |||||||||
|
407 |
| ||||||||
|
| |||||||||
Health Care—0.5% |
| |||||||||
American Pacific Corp. | 161 | 160 |
PAR VALUE | VALUE | |||||||||
Health Care—continued |
| |||||||||
Lantheus Medical Imaging | $ | 70 | $ | 65 | ||||||
Millennium Health, LLC (fka Millennium Laboratories, LLC) Tranche B | 65 | 24 | ||||||||
New MMI, Inc., Term Loan B | 119 | 110 | ||||||||
Onex Carestream Finance LP Second Lien | 115 | 108 | ||||||||
|
| |||||||||
|
467 |
| ||||||||
|
| |||||||||
Industrials—0.1% |
| |||||||||
Koosharem, LLC | 94 | 93 | ||||||||
Photonis Technologies SAS First Lien | 25 | 23 | ||||||||
|
| |||||||||
|
116 |
| ||||||||
|
| |||||||||
Information Technology—0.4% |
| |||||||||
BMC Software Finance, Inc. | 33 | 30 | ||||||||
GTCR Valor Companies, Inc. First Lien | 50 | 49 | ||||||||
Lanyon Solutions, Inc. (Lanyon, Inc.) Second Lien | 310 | 294 | ||||||||
|
| |||||||||
|
373 |
| ||||||||
|
| |||||||||
Materials—0.1% |
| |||||||||
Albaugh, LLC | 52 | 52 | ||||||||
Styrolution US Holding LLC First Lien Tranche B-1 | 40 | 40 | ||||||||
|
| |||||||||
|
92 |
| ||||||||
|
| |||||||||
Utilities—0.5% |
| |||||||||
Empire Generating Co, LLC Advance Term Loan B | 79 | 71 |
PAR VALUE | VALUE | |||||||
Utilities—continued |
| |||||||
Empire Generating Co, LLC Advance Term Loan C | $ | 6 | $ 5 | |||||
Moxie Patriot LLC Construction B-1 Advances 6.750%, 12/19/20 | 115 | 110 | ||||||
Panda Temple Power, LLC Advance | 45 | 40 | ||||||
Texas Competitive Electric Holdings Company, LLC (TXU) 2014 Term Loan 4.677%, 11/18/15(11) | 345 | 112 | ||||||
Texas Competitive Electric Holdings Company, LLC (TXU) 2017 Term Loan 4.677%, 10/10/17(11) | 230 | 78 | ||||||
|
| |||||||
|
416
|
| ||||||
| ||||||||
TOTAL LOAN AGREEMENTS (Identified Cost $4,123) |
| 3,625 | ||||||
| ||||||||
SHARES | ||||||||
PREFERRED STOCK—0.2% |
| |||||||
Consumer Staples—0.2% |
| |||||||
Bunge Ltd. | 585 | 57 | ||||||
Universal Corp. /VA 6.750% | 95 | 118 | ||||||
|
| |||||||
|
175 |
| ||||||
|
| |||||||
Energy—0.0% | ||||||||
Chesapeake Energy Corp. 5.750%(13) | 26 | 11 | ||||||
|
| |||||||
Financials—0.0% | ||||||||
Cowen Group, Inc. Series A | 59 | 47 | ||||||
|
| |||||||
| ||||||||
TOTAL PREFERRED STOCK (Identified Cost $245) |
| 233 | ||||||
| ||||||||
COMMON STOCKS—28.8% |
| |||||||
Consumer Discretionary—4.7% |
| |||||||
Advance Auto Parts, Inc. | 1,443 | 286 |
See Notes to Financial Statements.
54
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||||
Consumer Discretionary—continued |
| |||||||||
Ainsworth Game | 4,040 | $ 9 | ||||||||
AutoZone, Inc.(13) | 226 | 177 | ||||||||
Comcast Corp. Class A | 10,757 | 674 | ||||||||
DISH Network Corp., | 1,796 | 113 | ||||||||
Eutelsat | 3,752 | 124 | ||||||||
Expedia, Inc.(9) | 3,712 | 506 | ||||||||
JAKKS Pacific, Inc.(13) | 762 | 6 | ||||||||
Liberty Global PLC., | 1,618 | 72 | ||||||||
Liberty Media Corp., | 16,284 | 664 | ||||||||
Liberty Ventures(13) | 9,840 | 429 | ||||||||
Lions Gate | 3,147 | 123 | ||||||||
McDonald’s Corp. | 564 | 63 | ||||||||
Mohawk Industries, | 112 | 22 | ||||||||
Newell Rubbermaid, | 4,962 | 210 | ||||||||
Ross Stores, Inc. | 2,791 | 141 | ||||||||
SES SA | 4,458 | 132 | ||||||||
Signet Jewelers Ltd. | 543 | 82 | ||||||||
Yum! Brands, Inc.(9) | 8,788 | 623 | ||||||||
|
| |||||||||
4,456 | ||||||||||
|
| |||||||||
Consumer Staples—0.6% |
| |||||||||
CVS Health Corp. | 1,113 | 110 | ||||||||
Herbalife, Ltd.(13) | 2,521 | 141 | ||||||||
Molson Coors Brewing | 964 | 85 | ||||||||
Mondelez | 3,260 | 151 | ||||||||
Reynolds American, | 2,265 | 109 | ||||||||
|
| |||||||||
596 | ||||||||||
|
| |||||||||
Energy—4.9% |
| |||||||||
Anadarko Petroleum | 7,332 | 490 | ||||||||
Apache Corp. | 7,337 | 346 | ||||||||
Chesapeake Energy | 236 | 2 | ||||||||
Cobalt International | 218 | 2 | ||||||||
Concho Resources, | 1,975 | 229 | ||||||||
EnLink Midstream LLC | 332 | 7 | ||||||||
Exterran Holdings, Inc. | 2,134 | 46 | ||||||||
Gaslog Ltd. | 3,588 | 42 | ||||||||
Golar LNG Ltd. | 23,524 | 682 | ||||||||
Halliburton Co. | 1,720 | 66 |
SHARES | VALUE | |||||||||
Energy—continued |
| |||||||||
Kinder Morgan, Inc. | 2,789 | $ 76 | ||||||||
Noble Energy Inc | 9,138 | 328 | ||||||||
Phillips 66 | 453 | 40 | ||||||||
Schlumberger Ltd. | 6,374 | 498 | ||||||||
SemGroup Corp. | 2,433 | 111 | ||||||||
Solazyme, Inc.(13) | 7,336 | 24 | ||||||||
Targa Resources Corp. | 2,166 | 124 | ||||||||
Tesoro Corp. | 5,197 | 556 | ||||||||
TransCanada Corp. | 843 | 28 | ||||||||
Valero Energy Corp. | 10,702 | 705 | ||||||||
Williams Cos, Inc. | 4,280 | 169 | ||||||||
|
| |||||||||
4,571 | ||||||||||
|
| |||||||||
Financials—1.0% |
| |||||||||
Affiliated Managers | 568 | 102 | ||||||||
Assurant, Inc. | 2,305 | 188 | ||||||||
Bank of America Corp. | 647 | 11 | ||||||||
China Reinsurance | 15,000 | 5 | ||||||||
Citigroup, Inc. | 2,291 | 122 | ||||||||
First Republic Bank/CA | 1,231 | 80 | ||||||||
FNF Group | 3,522 | 124 | ||||||||
Forest City | 170 | 4 | ||||||||
Japan Post Holdings | 2,100 | 24 | ||||||||
Springleaf Holdings, | 3,030 | 142 | ||||||||
Voya Financial, Inc. | 212 | 9 | ||||||||
Wells Fargo & Co. | 2,245 | 122 | ||||||||
|
| |||||||||
933 | ||||||||||
|
| |||||||||
Health Care—2.6% |
| |||||||||
Alexion | 215 | 38 | ||||||||
Allergan PLC(9)(13) | 3,080 | 950 | ||||||||
Baxalta, Inc. | 986 | 34 | ||||||||
Biogen, Inc.(13) | 1,802 | 524 | ||||||||
Bristol-Myers Squibb | 4,315 | 285 | ||||||||
Exelixis, Inc.(9)(13) | 14,523 | 87 | ||||||||
Greatbatch, Inc.(13) | 304 | 16 | ||||||||
Health Net, Inc./CA(13) | 733 | 47 | ||||||||
Merck & Co., Inc. | 4,075 | 223 | ||||||||
Mylan NV(13) | 1,682 | 74 | ||||||||
PTC Therapeutics, | 104 | 3 | ||||||||
Regeneron | 200 | 111 |
SHARES | VALUE | |||||||
Health Care—continued |
| |||||||
Sequenom, Inc.(13) | 10,402 | $ 18 | ||||||
Theravance, Inc. | 2,237 | 20 | ||||||
|
| |||||||
2,430 | ||||||||
|
| |||||||
Industrials—4.1% | ||||||||
Abertis | 7,585 | 126 | ||||||
Aercap Holdings | 12,176 | 505 | ||||||
Aeroports de Paris | 500 | 63 | ||||||
Air Canada(13) | 1,989 | 16 | ||||||
ASTM SpA | 1,700 | 23 | ||||||
Atlantia SpA | 8,050 | 223 | ||||||
Avis Budget Group, | 6,364 | 318 | ||||||
Canadian Pacific | 1,691 | 238 | ||||||
CSX Corp. | 9,834 | 265 | ||||||
Flughafen Wien AG | 220 | 21 | ||||||
Flughafen Zuerich AG | 51 | 39 | ||||||
Fraport AG Frankfurt | 1,408 | 89 | ||||||
General Electric Co. | 853 | 25 | ||||||
Hertz Global Holdings, | 19,349 | 377 | ||||||
Honeywell | 2,793 | 288 | ||||||
Ingersoll-Rand PLC | 2,938 | 174 | ||||||
Macquarie Atlas | 12,800 | 37 | ||||||
Macquarie | 3,465 | 276 | ||||||
Navistar International | 100 | 1 | ||||||
Norfolk Southern | 2,620 | 210 | ||||||
Societa Iniziative | 2,450 | 28 | ||||||
SolarCity Corp.(13) | 530 | 16 | ||||||
Southwest Airlines Co. | 1,117 | 52 | ||||||
Spotless Group | 7,965 | 12 | ||||||
Transurban Group | 16,131 | 119 | ||||||
Vinci SA | 3,180 | 215 | ||||||
Waste Connections, | 2,300 | 125 | ||||||
|
| |||||||
3,881 | ||||||||
|
| |||||||
Information Technology—8.4% |
| |||||||
Alphabet, Inc., Class | 47 | 35 | ||||||
Alphabet, Inc., Class | 1,169 | 831 |
See Notes to Financial Statements.
55
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||
Information Technology—continued |
| |||||||
ARM Holdings PLC | 13,933 | $ | 661 | |||||
ARRIS Group, Inc.(13) | 23,236 | 657 | ||||||
CDK Global, Inc. | 6,749 | 336 | ||||||
CommScope Holding | 15,118 | 490 | ||||||
Facebook, Inc. | 6,485 | 661 | ||||||
Juniper Networks, Inc. | 19,157 | 601 | ||||||
Microsoft Corp. | 12,685 | 668 | ||||||
Photronics, Inc.(13) | 80 | 1 | ||||||
QUALCOMM, Inc. | 10,530 | 626 | ||||||
VeriFone Systems, | 17,301 | 521 | ||||||
VeriSign, Inc.(13) | 5,594 | 451 | ||||||
Violin Memory, Inc.(13) | 2,286 | 4 | ||||||
Visa, Inc. Class A | 1,937 | 150 | ||||||
Yahoo!, Inc.(9)(13) | 33,291 | 1,186 | ||||||
|
| |||||||
7,879 | ||||||||
|
| |||||||
Materials—1.1% |
| |||||||
Albemarle Corp. | 4,717 | 252 | ||||||
Cemex SAB de CV | 4,275 | 27 | ||||||
CF Industries | 4,832 | 245 | ||||||
Eastman Chemical Co. | 5,841 | 422 | ||||||
Methanex Corp. | 3,005 | 120 | ||||||
PPG Industries, Inc. | 112 | 12 | ||||||
|
| |||||||
1,078 | ||||||||
|
| |||||||
Telecommunication Services—0.0% |
| |||||||
Straight Path | 167 | 5 | ||||||
|
| |||||||
Utilities—1.4% |
| |||||||
Ameren Corp. | 200 | 9 | ||||||
AusNet Services | 33,999 | 35 | ||||||
DUET Group | 75,096 | 126 | ||||||
Great Plains | 4,850 | 133 | ||||||
Hera SpA | 15,700 | 41 | ||||||
Pennon Group PLC | 10,165 | 127 | ||||||
PG&E Corp. | 2,050 | 110 | ||||||
REN - Redes | 4,800 | 15 | ||||||
SJW Corp. | 330 | 11 | ||||||
Snam SpA | 45,000 | 233 | ||||||
Spark Infrastructure | 41,652 | 61 | ||||||
Terna Rete Elettrica | 46,039 | 234 | ||||||
TerraForm Global, Inc. | 11,529 | 88 |
SHARES | VALUE | |||||||
Utilities—continued |
| |||||||
Toho Gas Co. Ltd. | 2,000 | $ | 12 | |||||
Tokyo Gas Co. Ltd. | 12,000 | 59 | ||||||
|
| |||||||
1,294 | ||||||||
| ||||||||
TOTAL COMMON STOCKS (Identified Cost $26,651) |
| 27,123 | ||||||
| ||||||||
RIGHTS—0.0% | ||||||||
Health Care—0.0% | ||||||||
Community Health | 6,335 | — | (15) | |||||
| ||||||||
TOTAL RIGHTS (Identified Cost $1) | — | (15) | ||||||
| ||||||||
MASTER LIMITED PARTNERSHIPS—9.1% |
| |||||||
Energy—0.2% |
| |||||||
Columbia Pipeline | 3,203 | 43 | ||||||
Golar LNG | 382 | 7 | ||||||
Tallgrass Energy | 2,238 | 97 | ||||||
Teekay Offshore | 82 | 1 | ||||||
VTTI Energy | 3,019 | 60 | ||||||
|
| |||||||
208 | ||||||||
|
| |||||||
Gas-Distribution—0.0% |
| |||||||
AmeriGas Partners LP | 1,286 | 55 | ||||||
|
| |||||||
Gas-Transportation—0.1% |
| |||||||
PBF Logistics LP | 1,947 | 41 | ||||||
Western Gas Equity | 936 | 40 | ||||||
|
| |||||||
81 | ||||||||
|
| |||||||
Oil & Gas Equipment & Services—0.0% |
| |||||||
USA Compression | 32 | 1 | ||||||
|
| |||||||
Oil Components-Exploration and |
| |||||||
Antero Midstream | 5,161 | 123 | ||||||
EQT GP Holdings LP | 897 | 24 | ||||||
Summit Midstream | 6,749 | 126 | ||||||
|
| |||||||
273 | ||||||||
|
| |||||||
Oil-Field Services—0.5% |
| |||||||
CrossAmerica | 5,491 | 139 |
SHARES | VALUE | |||||||
Oil-Field Services—continued |
| |||||||
Exterran Partners LP | 9,042 | $ | 180 | |||||
Rice Midstream | 8,306 | 114 | ||||||
|
| |||||||
433 | ||||||||
|
| |||||||
Pipelines—7.9% | ||||||||
Boardwalk Pipeline | 4,856 | 62 | ||||||
Buckeye Partners LP | 8,089 | 549 | ||||||
Cheniere Energy | 4,000 | 112 | ||||||
Cone Midstream | 1,244 | 12 | ||||||
Crestwood Equity | 7,793 | 23 | ||||||
DCP Midstream | 3,740 | 108 | ||||||
Dominion Midstream | 1,817 | 60 | ||||||
Enbridge Energy | 69 | 2 | ||||||
Energy Transfer | 20,376 | 900 | ||||||
Energy Transfer | 28,905 | 623 | ||||||
Enterprise Products | 48,069 | 1,328 | ||||||
EQT Midstream | 2,420 | 179 | ||||||
Genesis Energy LP | 2,466 | 99 | ||||||
Magellan Midstream | 8,902 | 568 | ||||||
MarkWest Energy | 7,033 | 307 | ||||||
MPLX LP | 1,206 | 47 | ||||||
NGL Energy | 8,790 | 163 | ||||||
NuStar Energy LP | 3,498 | 177 | ||||||
ONEOK Partners LP | 4,683 | 149 | ||||||
PennTex Midstream | 3,432 | 61 | ||||||
Plains All American | 18,800 | 596 | ||||||
Plains GP Holdings LP Class A | 7,447 | 116 | ||||||
Shell Midstream | 6,248 | 214 | ||||||
Sunoco Logistics | 4,317 | 125 | ||||||
Tallgrass Energy GP | 1,805 | 43 | ||||||
Targa Resources | 5,695 | 171 | ||||||
Tesoro Logistics LP | 7,092 | 398 | ||||||
Williams Partners LP | 6,929 | 234 | ||||||
|
| |||||||
7,426 | ||||||||
|
|
See Notes to Financial Statements.
56
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||||
Transportation-Marine—0.1% | ||||||||||
Teekay LNG Partners Ltd. | 3,183 | $ | 79 | |||||||
| ||||||||||
TOTAL MASTER LIMITED PARTNERSHIPS | ||||||||||
(Identified Cost $10,185) | 8,556 | |||||||||
| ||||||||||
REAL ESTATE INVESTMENT TRUSTS—6.9% | ||||||||||
Apartments—1.4% | ||||||||||
American Campus Communities, Inc. | 3,570 | 145 | ||||||||
AvalonBay Communities, Inc. | 1,895 | 331 | ||||||||
Camden Property Trust | 4,093 | 302 | ||||||||
Equity Residential | 6,767 | 523 | ||||||||
|
| |||||||||
1,301 | ||||||||||
|
| |||||||||
Diversified—0.3% | ||||||||||
American Assets Trust, Inc. | 456 | 19 | ||||||||
DuPont Fabros Technology, Inc. | 1,620 | 52 | ||||||||
Gramercy Property Trust, Inc. | 11 | 1 | ||||||||
Vornado Realty Trust | 2,379 | 239 | ||||||||
|
| |||||||||
311 | ||||||||||
|
| |||||||||
Freestanding—0.1% | ||||||||||
Spirit Realty Capital, Inc. | 8,207 | 84 | ||||||||
|
| |||||||||
Health Care—0.5% | ||||||||||
Care Capital Properties, Inc. | 1,610 | 53 | ||||||||
Medical Properties Trust, Inc. | 3,416 | 39 | ||||||||
National Health Investors, Inc. | 669 | 39 | ||||||||
Senior Housing Properties Trust | 3,292 | 50 | ||||||||
Ventas, Inc. | 2,705 | 145 | ||||||||
Welltower, Inc. | 2,133 | 139 | ||||||||
|
| |||||||||
465 | ||||||||||
|
| |||||||||
Industrial—0.3% | ||||||||||
Prologis, Inc. | 6,376 | 272 | ||||||||
|
| |||||||||
Infrastructure—0.7% | ||||||||||
American Tower Corp. | 6,235 | 637 | ||||||||
|
| |||||||||
Lodging/Resort—0.5% | ||||||||||
Host Hotels & Resorts, Inc. | 4,478 | 78 | ||||||||
LaSalle Hotel Properties | 5,289 | 155 | ||||||||
RLJ Lodging Trust | 3,855 | 97 |
SHARES | VALUE | |||||||||
Lodging/Resort—continued | ||||||||||
Sunstone Hotel Investors, Inc. | 5,961 | $ | 86 | |||||||
|
| |||||||||
416 | ||||||||||
|
| |||||||||
Mixed—0.2% | ||||||||||
Duke Realty Corp. | 6,558 | 136 | ||||||||
|
| |||||||||
Mortgage—0.0% | ||||||||||
Apollo Commercial Real Estate Finance, Inc. | 342 | 6 | ||||||||
RAIT Financial Trust | 1,167 | 5 | ||||||||
|
| |||||||||
11 | ||||||||||
|
| |||||||||
Office—0.8% | ||||||||||
BioMed Realty Trust, Inc. | 1,178 | 28 | ||||||||
Boston Properties, Inc. | 2,175 | 274 | ||||||||
Columbia Property Trust, Inc. | 1,933 | 48 | ||||||||
Corporate Office Properties Trust | 3,625 | 83 | ||||||||
Hudson Pacific Properties, Inc. | 2,154 | 61 | ||||||||
New York REIT, Inc. | 5,794 | 66 | ||||||||
Paramount Group, Inc. | 4,754 | 84 | ||||||||
SL Green Realty Corp. | 772 | 92 | ||||||||
|
| |||||||||
736 | ||||||||||
|
| |||||||||
Regional Malls—1.2% | ||||||||||
CBL & Associates Properties, Inc. | 6,816 | 100 | ||||||||
General Growth Properties, Inc. | 3,014 | 87 | ||||||||
Simon Property Group, Inc. | 3,992 | 804 | ||||||||
Taubman Centers, Inc. | 2,157 | 166 | ||||||||
|
| |||||||||
1,157 | ||||||||||
|
| |||||||||
Self Storage—0.4% | ||||||||||
CubeSmart | 3,071 | 86 | ||||||||
Public Storage | 1,413 | 324 | ||||||||
|
| |||||||||
410 | ||||||||||
|
| |||||||||
Shopping Centers—0.3% | ||||||||||
Acadia Realty Trust | 1,036 | 34 | ||||||||
Brixmor Property Group, Inc. | 3,297 | 85 | ||||||||
DDR Corp. | 5,288 | 89 | ||||||||
Ramco-Gershenson Properties Trust | 3,158 | 53 |
SHARES | VALUE | |||||||
Shopping Centers—continued | ||||||||
Retail Properties of America, Inc. Class A | 3,499 | $ | 52 | |||||
|
| |||||||
313 | ||||||||
|
| |||||||
Timber—0.2% | ||||||||
Weyerhaeuser Co. | 6,963 | 204 | ||||||
|
| |||||||
Warehouse/Industrial—0.0% | ||||||||
EastGroup Properties, Inc. | 371 | 21 | ||||||
| ||||||||
TOTAL REAL ESTATE INVESTMENT TRUSTS | ||||||||
(Identified Cost $6,396) | 6,474 | |||||||
| ||||||||
EXCHANGE-TRADED FUNDS—0.3% | ||||||||
Exchange Traded Funds—0.3% | ||||||||
Consumer Staples Select Sector SPDR Fund(16) | 1,973 | 99 | ||||||
Financial Select Sector SPDR Fund(16) | 1,002 | 24 | ||||||
iShares MSCI Mexico Capped ETF(16) | 1,100 | 60 | ||||||
ProShares Short 20+ Year Treasury(13)(16) | 3,050 | 75 | ||||||
|
| |||||||
258 | ||||||||
| ||||||||
TOTAL EXCHANGE-TRADED FUNDS | ||||||||
(Identified Cost $277) | 258 | |||||||
| ||||||||
CONTRACTS | ||||||||
PURCHASED OPTIONS—0.1% | ||||||||
Call Options—0.1% | ||||||||
Citrix Systems, Inc. Expiring 01/15/16 Strike Price $80(17) | 10 | 5 | ||||||
iShares Russell 2000 | 100 | 25 | ||||||
iShares Russell 2000 | 100 | 25 | ||||||
JAKKS Pacific, Inc. | 4 | — | (15) |
See Notes to Financial Statements.
57
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
CONTRACTS | VALUE | |||||||||
Call Options—continued | ||||||||||
Micron Technology, Inc. | 11 | $ | 1 | |||||||
Ocwen Financial Corp. | 15 | — | (15) | |||||||
Photronics, Inc. | 1 | — | (15) | |||||||
SanDisk Corp. | 4 | 2 | ||||||||
SPDR S&P 500 ETF | 9 | 5 | ||||||||
Theravance, Inc. | 4 | — | (15) | |||||||
TiVo, Inc. | 10 | — | (15) | |||||||
Zoetis, Inc. | 10 | 1 | ||||||||
|
| |||||||||
|
64 |
| ||||||||
|
| |||||||||
Put Options—0.0% | ||||||||||
Healthways, Inc. | 4 | — | (15) | |||||||
SPDR S&P 500 ETF Trust Expiring 11/20/15 Strike Price $207(17) | 4 | 1 | ||||||||
Teck Resources, Ltd. | 10 | — | (15) | |||||||
|
| |||||||||
|
1 |
| ||||||||
| ||||||||||
TOTAL PURCHASED OPTIONS |
| |||||||||
(Identified Cost $64) | 65 | |||||||||
| ||||||||||
TOTAL LONG TERM INVESTMENTS — 75.4% |
| |||||||||
(Identified Cost $75,550) | 71,073 | |||||||||
|
SHARES | VALUE | |||||||
SHORT-TERM INVESTMENTS—22.0% | ||||||||
Money Market Mutual Funds—22.0% | ||||||||
BlackRock Liquidity Funds TempFund Portfolio - Institutional Shares (Seven-day effective yield 0.120%) | 20,792,256 | $ | 20,792 | |||||
| ||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||
(Identified Cost $20,792) | 20,792 | |||||||
| ||||||||
TOTAL INVESTMENTS, BEFORE SECURITIES |
| |||||||
(Identified Cost $96,342) | 91,865 | (1) | ||||||
| ||||||||
PAR VALUE | ||||||||
SECURITIES SOLD SHORT—(9.8) | ||||||||
U.S. Government Securities—(0.4)% | ||||||||
United States Treasury Note/Bond | $ | (2,000) | (2) | |||||
1.625%, 7/31/20(18) | (1,000) | (1) | ||||||
1.375%, 10/31/20(18) | (156,000) | (155) | ||||||
2.000%, 8/15/25(18) | (219,000) | (216) | ||||||
|
| |||||||
|
(374)
|
| ||||||
| ||||||||
TOTAL U.S. GOVERNMENT SECURITIES |
| |||||||
(Identified Cost $(375)) | (374) | |||||||
| ||||||||
CONVERTIBLE BONDS—0.0% | ||||||||
Energy—0.0% | ||||||||
Cobalt International Energy, Inc. | (30,000) | (21) | ||||||
|
| |||||||
Industrials—0.0% | ||||||||
Navistar International Corp. | (25,000) | (18) | ||||||
| ||||||||
TOTAL CONVERTIBLE BONDS (Identified Cost $(39)) |
| (39) | ||||||
| ||||||||
SHARES | ||||||||
COMMON STOCKS—(9.4)% | ||||||||
Consumer Discretionary—(0.2)% | ||||||||
Carriage Services, | (2,817) | (61) |
SHARES | VALUE | |||||||
Consumer Discretionary—continued | ||||||||
Hovnanian Enterprises, Inc. Class A(18)(19) | (5,566 | ) | $ | (11 | ) | |||
JAKKS Pacific, Inc.(18)(19) | (6,617 | ) | (52 | ) | ||||
LGI Homes, Inc.(18)(19) | (2,521 | ) | (71 | ) | ||||
Restoration Hardware Holdings, Inc.(18)(19) | (132 | ) | (14 | ) | ||||
TiVo, Inc.(18)(19) | (854 | ) | (8 | ) | ||||
|
| |||||||
|
(217 |
) | ||||||
|
| |||||||
Consumer Staples—(0.2)% | ||||||||
B&G Foods, Inc.(18) | (205 | ) | (7 | ) | ||||
Bunge Ltd.(18) | (379 | ) | (28 | ) | ||||
Universal Corp./VA(18) | (1,557 | ) | (84 | ) | ||||
Vector Group, Ltd.(18) | (3,511 | ) | (85 | ) | ||||
|
| |||||||
|
(204 |
) | ||||||
|
| |||||||
Energy—(0.3)% | ||||||||
Alon USA Energy, Inc.(18) | (4,213 | ) | (70 | ) | ||||
Chesapeake Energy | (720 | ) | (5 | ) | ||||
Cobalt International Energy, | (1,539 | ) | (12 | ) | ||||
Green Plains, Inc.(18) | (1,547 | ) | (32 | ) | ||||
Renewable Energy Group, | (6,180 | ) | (49 | ) | ||||
Solazyme, Inc.(18)(19) | (17,438 | ) | (57 | ) | ||||
|
| |||||||
|
(225 |
) | ||||||
|
| |||||||
Exchange Traded Funds—(6.5)% | ||||||||
Energy Select Sector SPDR Fund(16)(18) | (1,063 | ) | (73 | ) | ||||
iShares Russell 2000 | (22,914 | ) | (2,643 | ) | ||||
iShares US Real Estate | (666 | ) | (50 | ) | ||||
SPDR S&P 500 ETF | (15,746 | ) | (3,274 | ) | ||||
SPDR S&P Oil & Gas Exploration & Production ETF(16)(18) | (1,461 | ) | (54 | ) | ||||
|
| |||||||
|
(6,094 |
) | ||||||
|
| |||||||
Financials—(0.2)% | ||||||||
AmTrust Financial Services, | (600 | ) | (41 | ) | ||||
Cowen Group, Inc., | (10,269 | ) | (43 | ) | ||||
Encore Capital Group, Inc.(18)(19) | (505 | ) | (21 | ) | ||||
Forest City Enterprises, Inc. Class A(18)(19) | (811 | ) | (18 | ) |
See Notes to Financial Statements.
58
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
SHARES | VALUE | |||||||||
Financials—continued |
| |||||||||
MGIC Investment | (1,712) | $ (16 | ) | |||||||
PRA Group, Inc.(18)(19) | (388) | (21 | ) | |||||||
|
| |||||||||
|
(160 |
) | ||||||||
|
| |||||||||
Health Care—(0.4)% | ||||||||||
ANI Pharmaceuticals, | (720) | (30 | ) | |||||||
Endologix, Inc.(18)(19) | (686) | (6 | ) | |||||||
Exelixis, Inc.(18)(19) | (24,141) | (145 | ) | |||||||
Healthways, Inc.(18)(19) | (234) | (3 | ) | |||||||
Hologic, Inc.(18)(19) | (455) | (18 | ) | |||||||
Ironwood Pharmaceuticals, Inc.(18)(19) | (1,735) | (20 | ) | |||||||
PDL BioPharma, Inc.(18) | (637) | (3 | ) | |||||||
PTC Therapeutics, | (62) | (1 | ) | |||||||
Quidel Corp.(18)(19) | (1,101) | (21 | ) | |||||||
Sequenom, Inc.(18)(19) | (15,001) | (26 | ) | |||||||
Theravance, Inc.(18) | (3,604) | (32 | ) | |||||||
Wright Medical Group | (1,784) | (34 | ) | |||||||
|
| |||||||||
|
(339 |
) | ||||||||
|
| |||||||||
Industrials—(0.4)% | ||||||||||
Aegean Marine Petroleum Network, Inc.(18) | (1,435) | (11 | ) | |||||||
Altra Industrial Motion | (2,788) | (74 | ) | |||||||
Atlas Air Worldwide Holdings, Inc.(18)(19) | (493) | (20 | ) | |||||||
Cenveo, Inc.(18)(19) | (9,467) | (18 | ) | |||||||
Dycom Industries, | (535) | (41 | ) | |||||||
Integrated Device Technology, Inc.(18)(19) | (1,378) | (35 | ) | |||||||
Navistar International | (274) | (4 | ) | |||||||
On Semiconductor | (827) | (9 | ) | |||||||
SolarCity Corp.(18)(19) | (1,089) | (32 | ) | |||||||
Trinity Industries, Inc.(18) | (4,735) | (128 | ) | |||||||
Wabash National | (1,562) | (19 | ) | |||||||
|
| |||||||||
|
(391 |
) | ||||||||
|
| |||||||||
Information Technology—(1.2)% | ||||||||||
Alibaba Group Holding, Ltd. ADR(18)(19) | (8,856) | (742 | ) | |||||||
Blucora, Inc.(18)(19) | (787) | (8 | ) |
SHARES | VALUE | |||||||||
Information Technology—continued |
| |||||||||
Bottomline Technologies de, Inc.(18)(19) | (406) | $ (11 | ) | |||||||
BroadSoft, Inc.(18)(19) | (1,196) | (38 | ) | |||||||
Citrix Systems, | (653) | (54 | ) | |||||||
FireEye, Inc.(18)(19) | (250) | (7 | ) | |||||||
Intel Corp.(18) | (1,661) | (56 | ) | |||||||
LinkedIn Corp. | (21) | (5 | ) | |||||||
MercadoLibre, Inc.(18) | (138) | (14 | ) | |||||||
Micron Technology, | (704) | (12 | ) | |||||||
NetSuite, Inc.(18)(19) | (284) | (24 | ) | |||||||
Nxp Semiconductors | (305) | (24 | ) | |||||||
Photronics, Inc.(18)(19) | (5,700) | (55 | ) | |||||||
Rovi Corp.(18)(19) | (403) | (4 | ) | |||||||
SanDisk Corp.(18) | (277) | (21 | ) | |||||||
SunEdison, Inc.(18)(19) | (1,539) | (11 | ) | |||||||
Violin Memory, Inc.(18)(19) | (15,579) | (25 | ) | |||||||
WebMD Health | (469) | (19 | ) | |||||||
Workday, Inc., | (383) | (30 | ) | |||||||
|
| |||||||||
|
(1,160 |
) | ||||||||
|
| |||||||||
Mortgage—0.0% | ||||||||||
Apollo Commercial Real Estate Finance, Inc.(18) | (980) | (16 | ) | |||||||
Colony Capital, Inc., Class A(18) | (152) | (3 | ) | |||||||
Redwood Trust, Inc.(18) | (58) | (1 | ) | |||||||
|
| |||||||||
|
(20 |
) | ||||||||
|
| |||||||||
Office—0.0% | ||||||||||
Gramercy Property Trust, Inc.(18) | (789) | (18 | ) | |||||||
|
| |||||||||
Residential—0.0% | ||||||||||
American Residential Properties, Inc.(18) | (807) | (13 | ) | |||||||
Starwood Waypoint Residential Trust(18) | (407) | (10 | ) | |||||||
|
| |||||||||
|
(23 |
) | ||||||||
| ||||||||||
TOTAL COMMON STOCKS | ||||||||||
(Proceeds $(8,875)) | (8,851 | ) | ||||||||
| ||||||||||
TOTAL SECURITIES SOLD SHORT — (9.8)% | ||||||||||
(Proceeds $(9,289)) | (9,264 | )(1) | ||||||||
|
CONTRACTS | VALUE | |||||||
WRITTEN OPTIONS—0.0% | ||||||||
Call Options—0.0% | ||||||||
SPDR S&P 500 ETF Trust | (4 | ) | (1 | ) | ||||
Zoetis, Inc. | (10 | ) | — | (15) | ||||
|
| |||||||
|
(1 |
) | ||||||
|
| |||||||
Put Options—0.0% | ||||||||
iShares Russell 2000 ETF | (100 | ) | (6 | ) | ||||
iShares Russell 2000 ETF | (100 | ) | (8 | ) | ||||
Micron Technology, Inc. Expiring 01/15/16 | (11 | ) | (2 | ) | ||||
SanDisk Corp. | (3 | ) | — | (15) | ||||
Theravance, Inc. | (4 | ) | — | (15) | ||||
TiVo, Inc. | (10 | ) | (1 | ) | ||||
Zoetis, Inc. | (10 | ) | (1 | ) | ||||
|
| |||||||
|
(18 |
) | ||||||
| ||||||||
TOTAL WRITTEN OPTIONS | ||||||||
(Proceeds $(17)) | (19 | )(1) | ||||||
| ||||||||
TOTAL INVESTMENTS NET OF SECURITIES SOLD SHORT AND WRITTEN OPTIONS — 87.6% |
| |||||||
(Identified Cost $87,036) | $82,582 | |||||||
Other assets and liabilities, net — 12.4% | 11,691 | |||||||
|
| |||||||
NET ASSETS — 100.0% |
|
$94,273 |
| |||||
|
|
See Notes to Financial Statements.
59
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
Footnote Legend:
(1) | Federal Income Tax Information: For tax information at October 31, 2015, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. | |
(2) | Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015. | |
(3) | 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 October 31, 2015, these securities amounted to a value of $11,641 or 12.4% of net assets. | |
(4) | Regulation S security. Security is offered and sold outside of the United States, therefore, it is exempt from registration with the SEC under rules 903 and 904 of the Securities Act of 1933. |
(5) | This note was issued for the sole purpose of funding a loan agreement between the issuer and the borrower. As the credit risk for this security lies solely with the borrower, the name represented here is that of the borrower. | |
(6) | Security in default. | |
(7) | 86% of the income received was in cash and 14% in PIK. | |
(8) | Illiquid security. | |
(9) | All or a portion segregated as collateral for securities sold short. | |
(10) | 100% of the income received was in cash. | |
(11) | Security in default, interest payments are being received during the bankruptcy proceedings. | |
(12) | This loan will settle after October 31, 2015, at which time the interest rate, based on the London Interbank Offered Rate (“LIBOR”) and |
the agreed upon spread on trade date, will be known. |
(13) | Non-income producing. |
(14) | Security valued at fair value as determined in good faith by or under the direction of the Trustees. |
(15) | Amount is less than $500. |
(16) | These Funds are public funds and the prospectus and annual reports are publicly available. |
(17) | Strike price not reported in thousands. (18) The Fund is contractually responsible to the lender for any dividends payable and interest accrued on securities while those securities are in a short position. These dividends and interest are recorded as an expense of the Fund. |
(19) | No dividend expense on security sold short. |
Abbreviations: | ||||
ADR | American Depositary Receipt | |||
CBT | Chicago Board of Trade | |||
CLO | Collateralized Loan Obligation | |||
ETF | Exchange Traded Fund | |||
ICE | Intercontinental Exchange | |||
LLC | Limited Liability Company | |||
LP | Limited Partnership | |||
PIK | Payment in Kind | |||
PLC | Public Limited Company | |||
REIT | Real Estate Investment Trusts | |||
S&P | Standard & Poor’s | |||
SPDR | Standard & Poor’s Depositary Receipt |
Currencies: | ||||
AUD | Australian Dollar | |||
BRL | Brazilian Real | |||
CAD | Canadian Dollar | |||
CHF | Swiss Franc | |||
CNY | Chinese Yuan | |||
EUR | European Currency Unit | |||
GBP | British Pound | |||
JPY | Japanese Yen | |||
MXN | Mexican Peso | |||
NZD | New Zealand Dollar | |||
USD | United States Dollar | |||
Country Weightings (Unaudited)† | ||||
United States | 82 | % | ||
United Kingdom | 2 | |||
Canada | 2 | |||
Luxembourg | 2 | |||
Ireland | 1 | |||
Netherlands | 1 | |||
Bermuda | 1 | |||
Italy | 1 | |||
Argentina | 1 | |||
Australia | 1 | |||
Other | 6 | |||
Total | 100 | % | ||
†% of total investments, net of securities sold short and written options, as of October 31, 2015. | ||||
See Notes to Financial Statements.
60
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
Futures contracts as of October 31,2015 were as follows:
Issue | Expiration | Contracts Purchased/(Sold) | Notional Value | Unrealized Appreciation/(Depreciation) | ||||||||||||||
Brent Crude Future | November 2015 | (2) | $ (99) | $ (2) | ||||||||||||||
Cac40 10 Euro Future | November 2015 | 4 | 216 | 11 | ||||||||||||||
Hang Seng Index Future | November 2015 | (1) | (146) | 4 | ||||||||||||||
10-Year Mini JGB Future | December 2015 | 1 | 123 | —(a) | ||||||||||||||
Australian 10-Year Bond Future | December 2015 | 7 | 4,897 | 1 | ||||||||||||||
Canada 10-Year Bond Future | December 2015 | 2 | 215 | (1) | ||||||||||||||
Cocoa Future | December 2015 | 4 | 136 | 4 | ||||||||||||||
Corn Future | December 2015 | (7) | (134) | (3) | ||||||||||||||
DJIA E-Mini (CBT) | December 2015 | 4 | 352 | —(a) | ||||||||||||||
Dollar Index | December 2015 | (2) | (194) | (2) | ||||||||||||||
Euro STOXX 50 | December 2015 | 4 | 150 | —(a) | ||||||||||||||
EURO-BOBL Future | December 2015 | 2 | 286 | —(a) | ||||||||||||||
Euro-Bund Future | December 2015 | 3 | 521 | 2 | ||||||||||||||
FTSE 100 Index Future | December 2015 | (1) | (98) | —(a) | ||||||||||||||
Gas Oil Future (ICE) | December 2015 | (2) | (92) | 2 | ||||||||||||||
Gasoline RBOB Future | December 2015 | (2) | (115) | (2) | ||||||||||||||
Gold 100 Ounce Future | December 2015 | (1) | (114) | —(a) | ||||||||||||||
KC HRW Wheat Future | December 2015 | (1) | (25) | (1) | ||||||||||||||
LME Copper Future | December 2015 | 3 | 384 | (10) | ||||||||||||||
LME Copper Future | December 2015 | (4) | (512) | (4) | ||||||||||||||
LME Primary Aluminum Futures | December 2015 | (6) | (220) | 14 | ||||||||||||||
LME Zinc | December 2015 | (3) | (128) | 1 | ||||||||||||||
Long Gilt Future | December 2015 | 1 | 182 | (1) | ||||||||||||||
NASDAQ 100 E-Mini | December 2015 | 6 | 557 | 22 | ||||||||||||||
Natural Gas Future | December 2015 | (7) | �� | (162) | 22 | |||||||||||||
NY Harbor/Heating Oil | December 2015 | (1) | (64) | 6 | ||||||||||||||
S&P 500 E-Mini Future | December 2015 | 6 | 622 | 6 | ||||||||||||||
Soybean Meal Future | December 2015 | (1) | (30) | —(a) | ||||||||||||||
Soybean Oil Future | December 2015 | (2) | (34) | 3 | ||||||||||||||
TOPIX Index Futures | December 2015 | 1 | 129 | 10 | ||||||||||||||
U.S. 10-Year Treasury Note (CBT) | December 2015 | 9 | 1,149 | 1 | ||||||||||||||
U.S. Long Bond (CBT) | December 2015 | 1 | 156 | 1 | ||||||||||||||
Wheat Future (CBT) | December 2015 | (7) | (183) | (8) | ||||||||||||||
WTI Crude Future | December 2015 | (1) | (47) | —(a) | ||||||||||||||
U.S. 5-Year Treasury Note (CBT) | January 2016 | 17 | 2,036 | (10) | ||||||||||||||
Coffee ’C’ Future | March 2016 | (4) | (186) | (5) | ||||||||||||||
Cotton No. 2 Future | March 2016 | (2) | (63) | (1) | ||||||||||||||
Soybean Future | March 2016 | (4) | (178) | 1 | ||||||||||||||
Sugar #11 (World) | May 2016 | 4 | 65 | 1 | ||||||||||||||
3-Month Euro Euribor | March 2017 | 41 | 11,335 | 14 | ||||||||||||||
90 Days Euro Bond | March 2017 | 55 | 13,592 | 15 | ||||||||||||||
90 Days Sterling Bond | March 2017 | 23 | 4,394 | 8 | ||||||||||||||
| ||||||||||||||||||
Total | $ 99 |
Footnote Legend:
(a) | Amount is less than $500. |
See Notes to Financial Statements.
61
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
Forward foreign currency exchange contracts as of October 31, 2015 were as follows:
| ||||||||||||||||||||||||||||||
Currency Purchased | Value | Currency Sold | Value | Counterparty | Settlement Date |
Unrealized Appreciation | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
AUD* | 330 | USD | 232 | Bank Of America N.A. | 12/18/15 | $ 3 | ||||||||||||||||||||||||
AUD* | 442 | USD | 320 | Bank Of America N.A. | 12/18/15 | (5) | ||||||||||||||||||||||||
CAD* | 777 | USD | 585 | Bank Of America N.A. | 12/18/15 | 9 | ||||||||||||||||||||||||
CAD* | 94 | USD | 72 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
CHF* | 4 | USD | 4 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
CHF* | 761 | USD | 795 | Bank Of America N.A. | 12/18/15 | (23) | ||||||||||||||||||||||||
CNY | 2,792 | USD | 434 | JPMorgan Chase Bank N.A. | 11/30/15 | 7 | ||||||||||||||||||||||||
CNY | 3,876 | USD | 592 | JPMorgan Chase Bank N.A. | 7/29/16 | 15 | ||||||||||||||||||||||||
EUR* | 29 | USD | 32 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
EUR* | 1,362 | USD | 1,547 | Bank Of America N.A. | 12/18/15 | (48) | ||||||||||||||||||||||||
GBP* | 311 | USD | 476 | Bank Of America N.A. | 12/18/15 | 3 | ||||||||||||||||||||||||
GBP* | 662 | USD | 1,024 | Bank Of America N.A. | 12/18/15 | (4) | ||||||||||||||||||||||||
JPY* | 13,718 | USD | 114 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
JPY* | 26,585 | USD | 222 | Bank Of America N.A. | 12/18/15 | (1) | ||||||||||||||||||||||||
JPY | 16,000 | USD | 132 | JPMorgan Chase Bank N.A. | 12/16/15 | — (a) | ||||||||||||||||||||||||
JPY | 42,547 | USD | 355 | JPMorgan Chase Bank N.A. | 12/16/15 | (2) | ||||||||||||||||||||||||
MXN* | 875 | USD | 52 | Bank Of America N.A. | 12/18/15 | 1 | ||||||||||||||||||||||||
MXN* | 448 | USD | 27 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
NZD* | 129 | USD | 84 | Bank Of America N.A. | 12/18/15 | 3 | ||||||||||||||||||||||||
NZD* | 160 | USD | 108 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
USD* | 52 | AUD | 73 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
USD* | 859 | AUD | 1,222 | Bank Of America N.A. | 12/18/15 | (11) | ||||||||||||||||||||||||
USD* | 50 | CAD | 65 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
USD* | 908 | CAD | 1,203 | Bank Of America N.A. | 12/18/15 | (12) | ||||||||||||||||||||||||
USD* | 875 | CHF | 851 | Bank Of America N.A. | 12/18/15 | 13 | ||||||||||||||||||||||||
USD* | 841 | EUR | 751 | Bank Of America N.A. | 12/18/15 | 15 | ||||||||||||||||||||||||
USD* | 260 | EUR | 238 | Bank Of America N.A. | 12/18/15 | (1) | ||||||||||||||||||||||||
USD* | 986 | GBP | 639 | Bank Of America N.A. | 12/18/15 | 1 | ||||||||||||||||||||||||
USD* | 586 | GBP | 385 | Bank Of America N.A. | 12/18/15 | (7) | ||||||||||||||||||||||||
USD* | 543 | JPY | 65,130 | Bank Of America N.A. | 12/18/15 | 3 | ||||||||||||||||||||||||
USD* | 989 | JPY | 119,259 | Bank Of America N.A. | 12/18/15 | (1) | ||||||||||||||||||||||||
USD* | 27 | MXN | 447 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
USD* | 416 | MXN | 7,046 | Bank Of America N.A. | 12/18/15 | (9) | ||||||||||||||||||||||||
USD* | 33 | NZD | 49 | Bank Of America N.A. | 12/18/15 | — (a) | ||||||||||||||||||||||||
USD* | 385 | NZD | 615 | Bank Of America N.A. | 12/18/15 | (30) | ||||||||||||||||||||||||
USD | 363 | CNY | 2,337 | JPMorgan Chase Bank N.A. | 11/30/15 | (7) | ||||||||||||||||||||||||
USD | 488 | JPY | 58,547 | JPMorgan Chase Bank N.A. | 12/16/15 | 2 | ||||||||||||||||||||||||
USD | 228 | EUR | 201 | JPMorgan Chase Bank N.A. | 3/16/16 | 6 | ||||||||||||||||||||||||
USD | 329 | EUR | 292 | JPMorgan Chase Bank N.A. | 4/06/16 | 6 | ||||||||||||||||||||||||
USD | 42 | EUR | 37 | JPMorgan Chase Bank N.A. | 7/25/16 | 1 | ||||||||||||||||||||||||
USD | 402 | EUR | 365 | JPMorgan Chase Bank N.A. | 7/25/16 | (2) | ||||||||||||||||||||||||
USD | 971 | CNY | 6,438 | JPMorgan Chase Bank N.A. | 7/29/16 | (35) | ||||||||||||||||||||||||
USD | 78 | EUR | 69 | The Bank Of New York Mellon | 12/15/15 | 2 | ||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||
Total | $(108) |
Footnote Legend:
(a) | Amount is less than $500. |
* | Non deliverable forward. See Note 3B in the Notes to Financial Statements. |
See Notes to Financial Statements.
62
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
Over-the-counter credit default swap- buy protection(1) outstanding as of October 31, 2015 was as follows:
Reference Entity
| Counterparty | Fixed Pay Rate | Expiration Date | Notional Amount(2) | Value | Premiums Paid |
Unrealized | |||||||||||||||||
Mitsui O.S.K. Lines, Ltd. | JPMorgan Chase Bank N.A. | 1% | 12/20/20 | 19,000 | JPY | $ 3 | $ $5 | $ $(2 | ) | |||||||||||||||
Standard Euro Finance Corp. | JPMorgan Chase Bank N.A. | 1% | 12/20/20 | 290 | EUR | 17 | 30 | (13 | ) | |||||||||||||||
Total | $20 | $ 35 | $ (15 | ) | ||||||||||||||||||||
|
|
|
|
|
|
Over-the-counter credit default swap- sell protection(3) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Receive Rate | Expiration Date | Notional Amount(2) | Value | Premiums (Received) | Unrealized Appreciation | |||||||||||
Standard Euro Finance Corp. |
JPMorgan | 1% | 12/20/20 | 290 EUR | $(1 | ) | $(7) | $6 | ||||||||||
Total | $(1 | ) | $(7) | $6 | ||||||||||||||
|
|
|
|
(1)If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying investments comprising the referenced index or (ii) receive a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
(2)The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
(3)If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying investments comprising the referenced index or (ii) pay a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
The table that follows shows the undiscounted maximum potential payment by the Fund related to selling credit protection in credit default swaps:
Type of Reference Asset of which the Fund Sold Protection |
Total Maximum Potential Payments for Selling Credit Protection | Amount Recoverable* | Reference Asset | |||
Standard Euro Finance Corp. | 290 EUR | $ — | A+ |
* | The Fund has no amounts recoverable from related purchased protection. In addition, the Fund has no recourse provisions under the credit derivatives and holds collateral which can offset or reduce potential payments under a triggering event. |
** | The period end reference asset security ratings, as rated by any rating organization, are included in the equivalent Standard & Poor’s rating category. The reference asset rating represents the likelihood of a potential credit event on the reference asset which would result in a related payment by the Fund. |
See Notes to Financial Statements.
63
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
Over-the-counter total return swap outstanding as of October 31, 2015 was as follows:
Reference Entity | Floating Rate(a) | Counterparty# | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||||||
Allianz SE | Federal Funds | Morgan Stanley | 10/29/17 | $ | 58 | USD | $ — (b) | $ | — | $ — | (b) | |||||||||||||||||
Effective Rate | ||||||||||||||||||||||||||||
Barratt Development PLC | 1-month LIBOR | Bank Of America N.A. | 1/25/17 | 7 | GBP | — (b) | — | — | (b) | |||||||||||||||||||
Berkeley Group | 1-month LIBOR(a) | Bank Of America N.A. | 1/25/17 | 7 | GBP | (1) | — | (1) | ||||||||||||||||||||
CRH PLC | 1-month EURIBOR | Bank Of America N.A. | 8/26/16 | 22 | EUR | 1 | — | 1 | ||||||||||||||||||||
Deutsche Boerse AG | Federal Funds | Morgan Stanley | 9/16/17 | 83 | USD | — (b) | — | — | (b) | |||||||||||||||||||
Effective Rate | ||||||||||||||||||||||||||||
Entertainment One, Ltd. | 1-month LIBOR | Bank Of America N.A. | 11/01/16 | 2 | GBP | (1) | — | (1) | ||||||||||||||||||||
iBoxx USD Liquid High Yield | 3-month LIBOR | JPMorgan Chase Bank | 12/20/15 | 792 | USD | (7) | — | (7) | ||||||||||||||||||||
Index | N.A. | |||||||||||||||||||||||||||
KBC Groep NV | Federal Funds | Morgan Stanley | 9/15/17 | 62 | USD | — (b) | — | — | (b) | |||||||||||||||||||
Effective Rate | ||||||||||||||||||||||||||||
Northstar Realty Finance | Federal Funds | Morgan Stanley | 4/21/17 | 152 | USD | — | — | — | ||||||||||||||||||||
Effective Rate | ||||||||||||||||||||||||||||
SRP Groupe SA | 1-month EURIBOR | Bank Of America N.A. | 5/02/17 | 16 | EUR | (1) | — | (1) | ||||||||||||||||||||
Wolseley PLC | 1-month LIBOR | Bank Of America N.A. | 4/25/17 | 16 | GBP | — (b) | — | — | (b) | |||||||||||||||||||
Total |
|
$ (9) |
|
$ |
— |
|
|
$ (9) |
| |||||||||||||||||||
|
|
|
|
|
|
Footnote Legend:
(a) | The Fund pays the floating rate (+/- a spread) and receives the total return of the reference entity. |
(b) | Amount is less than $500. |
# | May be comprised of multiple contracts with the same counterparty, floating rate and expiration date. |
Over-the-counter total return basket swap(a) outstanding at October 31, 2015 was as follows:
Counterparty | Description | Notional | Termination Date | Value | ||||||||||
Morgan Stanley | The Fund pays the total return on a portfolio of short positions and receives the Federal Funds Effective Rate (+/- a spread), which is denominated in U.S. Dollars based on the local currencies of the positions within the swap. The portfolio consists of about 200 short positions in U.S. Equities and ADRs which are diversified across all sectors and have a market cap restricted to the top 700 positions in the Russell 3000. There are no embedded fees. | (10,678 | ) | 7/27/17 | $(14 | ) | ||||||||
|
|
Footnote Legend:
(a)Net payment made at reset date.
See Notes to Financial Statements.
64
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Continued)
OCTOBER 31, 2015
($ reported in thousands)
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Assets: | ||||||||||||||||
Debt Securities: | ||||||||||||||||
Foreign Government Securities | $ 1,239 | $ — | $ 1,065 | $ 174 | ||||||||||||
Municipal Bonds | 275 | — | 275 | — | ||||||||||||
Mortgaged-Backed Securities | 34 | — | 34 | — | ||||||||||||
Asset-Backed Securities | 330 | — | 330 | — | ||||||||||||
Corporate Bonds | 17,209 | — | 17,062 | 147 | ||||||||||||
Convertible Bonds | 5,652 | — | 5,652 | — | ||||||||||||
Loan Agreements | 3,625 | — | 3,549 | 76 | ||||||||||||
Equity Securities: | ||||||||||||||||
Preferred Stock | 233 | 186 | 47 | — | ||||||||||||
Common Stocks | 27,123 | 26,651 | 472 | — | ||||||||||||
Rights | —(a) | — (a) | — | — | ||||||||||||
Exchange-Traded Funds | 258 | 258 | — | — | ||||||||||||
Master Limited Partnerships | 8,556 | 8,556 | — | — | ||||||||||||
Real Estate Investment Trusts | 6,474 | 6,474 | — | — | ||||||||||||
Short-Term Investments | 20,792 | 20,792 | — | — | ||||||||||||
Purchased Options | 65 | 63 | 2 | — | ||||||||||||
Futures Contracts | 149 | 149 | — | — | ||||||||||||
Foreign Currency Exchange Contracts | 90 | — | 90 | — | ||||||||||||
Over-the-Counter Credit Default Swaps | 20 | — | 20 | — | ||||||||||||
Over-the-Counter Total Return Swap | 1 | — | 1 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets |
|
92,125 |
|
|
63,129 |
|
|
28,599 |
|
|
397 |
| ||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Securities Sold Short | (9,264) | (8,851) | (413) | — | ||||||||||||
Written Options | (19) | (17) | (2) | — | ||||||||||||
Futures Contracts | (50) | (50) | — | — | ||||||||||||
Foreign Currency Exchange Contracts | (198) | — | (198) | — | ||||||||||||
Over-the Counter Credit Default Swaps | (1) | — | (1) | — | ||||||||||||
Over-the-Counter Total Return Swap | (10) | — | (10) | — | ||||||||||||
Over-the-Counter Total Return Basket Swap | (14) | — | (14) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities |
|
$(9,556) |
|
|
$(8,918) |
|
|
$ (638) |
|
|
$ — |
| ||||
|
|
|
|
|
|
|
|
Footnote Legend:
(a) | Amount is less than $500. |
Securities held by the Fund with an end of period value of $450 were transferred from Level 1 to Level 2 based on our valuation procedures for non-US securities. (See Note 2B in the Notes to Financial Statements for more information).
Securities held by the Fund with an end of period value of $175 were transferred from Level 2 to Level 1 since an exchange price became available.
See Notes to Financial Statements.
65
Table of Contents
VIRTUS ALTERNATIVE TOTAL SOLUTION FUND
CONSOLIDATED SCHEDULE OF INVESTMENTS AND SECURITIES SOLD SHORT (Concluded)
OCTOBER 31, 2015
($ reported in thousands)
The following is a reconciliation of assets of the Fund for Level 3 investments which significant unobservable inputs were used to determine fair value.
Total | Foreign Government Securities | Corporate Bonds | Convertible Bonds | Loan Agreements | ||||||||||||||||
Investments in Securities | ||||||||||||||||||||
Balance as of October 31, 2014 | $ 452 | $ 236 | $ 149 | $ 67 | $ — | |||||||||||||||
Accrued discount/(premium) | 1 | 1 | — | — (a) | — (a) | |||||||||||||||
Realized gain (loss) | (16) | — | — | (16) | — | |||||||||||||||
Change in unrealized appreciation | (45) | (63) | 1 | 24 | (7) | |||||||||||||||
Purchases | 83 | — | — | — | 83 | |||||||||||||||
Sales | (75) | — | — | (75) | — | |||||||||||||||
Transfers into Level 3(c) | — | — | — | — | — | |||||||||||||||
Transfers from Level 3(c) | — | — | — | — | — | |||||||||||||||
Paydowns | (3) | — | (3) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of October 31, 2015 | $ 397 | $ 174 (d) | $ 147 (d) | $ — | $ 76 (d) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Footnote Legend:
(a) | Amount is less than $500. |
(b) | Included in the related net change in unrealized appreciation (depreciation) in the Statements of Operations.The change in unrealized appreciation (depreciation) on investments still held as of October 31, 2015 was $(69). |
(c) | “Transfers into and/or from” represent the ending value as of October 31, 2015, for any investment security where a change in the pricing level occurred from the beginning to the end of the period. |
(d) | The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of such Level 3 investments. |
None of the securities in this table are internally fair valued.
See Notes to Financial Statements.
66
Table of Contents
VIRTUS CREDIT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
FOREIGN GOVERNMENT SECURITIES—2.0% | ||||||||||
Argentine Republic Government International Bond 8.280%, 12/31/33(2) | 1,402 | EUR | $ | 1,563 | ||||||
Hellenic Republic Government Bond
|
| 500
| EUR
|
| 328
|
| ||||
| ||||||||||
TOTAL FOREIGN GOVERNMENT SECURITIES | ||||||||||
(Identified Cost $1,698) | 1,891 | |||||||||
| ||||||||||
MORTGAGED-BACKED SECURITIES—0.9% | ||||||||||
Non-Agency—0.9% | ||||||||||
VOLT XXXV LLC | 894 | 893 | ||||||||
| ||||||||||
TOTAL MORTGAGED-BACKED SECURITIES | ||||||||||
(Identified Cost $894) | 893 | |||||||||
| ||||||||||
CORPORATE BONDS—32.6% | ||||||||||
Consumer Discretionary—10.8% | ||||||||||
Cablevision Systems | 500 | 416 | ||||||||
Caesars Entertainment Operating Co., Inc. | 2,000 | 1,595 | ||||||||
Cequel Communications Holdings I LLC / Cequel Capital Corp. 144A | 1,000 | 964 | ||||||||
Claire’s Stores, Inc. 144A | 1,000 | 823 | ||||||||
Clear Channel Worldwide | 500 | 521 | ||||||||
iHeartCommunications, Inc. PIK Capitalization, 2.00% Interest, 12.00% Capitalization 14.000%, 2/1/21(5) | 505 | 210 | ||||||||
Intelsat Jackson Holdings SA | 1,000 | 915 | ||||||||
LBI Media, Inc. 144A | 3,000 | 3,015 | ||||||||
Lee Enterprises, | ||||||||||
PAR VALUE | VALUE | |||||||||
Consumer Discretionary—continued | ||||||||||
9.500%, 3/15/22(4) | $ | 1,500 | $ | 1,432 | ||||||
Station Casinos LLC 7.500%, 3/1/21 | 500 | 536 | ||||||||
|
| |||||||||
10,427 | ||||||||||
|
| |||||||||
Consumer Staples—1.3% | ||||||||||
Avon Products, Inc. | 1,000 | 723 | ||||||||
Dole Food Co., Inc. | 500 | 503 | ||||||||
|
| |||||||||
1,226 | ||||||||||
|
| |||||||||
Energy—1.0% | ||||||||||
Citgo Holding, Inc. | 1,000 | 1,010 | ||||||||
|
| |||||||||
Financials—4.0% | ||||||||||
Air Lease Corp. | 170 | 169 | ||||||||
Corrections Corp. of | 30 | 31 | ||||||||
Lehman Brothers | 10,000 | 758 | ||||||||
0.000%, 7/20/99(2) | 20,000 | 2,089 | ||||||||
0.000%, 11/16/99(2) | 10,000 | 767 | ||||||||
|
| |||||||||
3,814 | ||||||||||
|
| |||||||||
Health Care—1.8% | ||||||||||
Emdeon, Inc. 144A | 445 | 438 | ||||||||
Endo, Ltd. / Endo | 200 | 201 | ||||||||
HealthSouth Corp. | 50 | 50 | ||||||||
Tenet Healthcare Corp. | 1,000 | 1,004 | ||||||||
|
| |||||||||
1,693 | ||||||||||
|
| |||||||||
Industrials—1.8% | ||||||||||
Builders FirstSource, | 665 | 690 | ||||||||
TransDigm, Inc. | 1,000 | 1,020 | ||||||||
|
| |||||||||
1,710 | ||||||||||
|
| |||||||||
Information Technology—4.1% | ||||||||||
Advanced Micro |
PAR VALUE | VALUE | |||||||
Information Technology—continued | ||||||||
7.000%, 7/1/24 | $ | 500 | $ | 352 | ||||
Altegrity, Inc. 144A | 2,706 | 2,510 | ||||||
First Data Corp. | 1,000 | 1,143 | ||||||
|
| |||||||
4,005 | ||||||||
|
| |||||||
Materials—5.4% | ||||||||
Hexion, Inc. | 1,000 | 852 | ||||||
Hexion, Inc. / Hexion | 375 | 201 | ||||||
INEOS Group Holdings | 500 | 506 | ||||||
Momentive | 1,000 | 805 | ||||||
4.690%, 4/24/22 | 1,000 | 695 | ||||||
New Enterprise Stone | 2,060 | 2,145 | ||||||
|
| |||||||
5,204 | ||||||||
|
| |||||||
Telecommunication Services—1.4% | ||||||||
Level 3 Communications, Inc. | 500 | 514 | ||||||
Sprint Capital Corp. | 1,000 | 832 | ||||||
|
| |||||||
1,346 | ||||||||
|
| |||||||
Utilities—1.0% | ||||||||
Calpine Corp. | 1,000 | 951 | ||||||
| ||||||||
TOTAL CORPORATE BONDS | ||||||||
(Identified Cost $32,841) | 31,386 | |||||||
| ||||||||
CONVERTIBLE BONDS—1.8% | ||||||||
Information Technology—1.8% | ||||||||
Nortel Networks Corp. | 2,000 | 1,705 | ||||||
| ||||||||
TOTAL CONVERTIBLE BONDS | ||||||||
(Identified Cost $1,800) | 1,705 | |||||||
|
See Notes to Financial Statements.
67
Table of Contents
VIRTUS CREDIT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR | ||||||||||
VALUE | VALUE | |||||||||
LOAN AGREEMENTS—10.5% | ||||||||||
Consumer Discretionary—2.0% | ||||||||||
Affinion Group, Inc., Second Lien | $ | 2,000 | $ 1,833 | |||||||
Charter Communi- cations Operating, LLC (aka CCO Safari LLC) | 119 | 119 | ||||||||
|
| |||||||||
1,952 | ||||||||||
|
| |||||||||
Consumer Staples—5.5% | ||||||||||
Hostess Brands LLC, Second Lien | 2,920 | 2,919 | ||||||||
Kronos, Inc., Second Lien | 500 | 507 | ||||||||
Sun Products Corporation, The (fka Huish Detergents Inc.), Tranche B | 2,000 | 1,937 | ||||||||
|
| |||||||||
5,363 | ||||||||||
|
| |||||||||
Industrials—0.1% | ||||||||||
Navistar, Inc., Tranche B | 78 | 74 | ||||||||
|
| |||||||||
Information Technology—0.8% | ||||||||||
Deltek, Inc., Second | 476 | 476 | ||||||||
First Data Corp. 2022 |
| |||||||||
Dollar Term Loan | 302 | 302 | ||||||||
|
| |||||||||
778 | ||||||||||
|
| |||||||||
Utilities—2.1% | ||||||||||
Energy Future Intermediate | 2,000 | 2,002 | ||||||||
| ||||||||||
TOTAL LOAN AGREEMENTS (Identified Cost $10,223) | 10,169 | |||||||||
|
PAR | ||||||||
VALUE | VALUE | |||||||
CLAIMS—0.6% | ||||||||
Financials—0.6% | ||||||||
Lehman Brothers | $ | 10,000 | $ 562 | |||||
| ||||||||
TOTAL CLAIMS (Identified Cost $540) |
| 562 | ||||||
| ||||||||
TOTAL LONG TERM INVESTMENTS — 48.4% | ||||||||
(Identified Cost $47,996) | 46,606 | |||||||
| ||||||||
SHARES | ||||||||
SHORT-TERM INVESTMENTS—49.6% | ||||||||
Money Market Mutual Funds—49.6% | ||||||||
BlackRock Liquidity Funds TempFund Portfolio - | 47,792,182 | 47,792 | ||||||
|
| |||||||
| ||||||||
TOTAL SHORT-TERM INVESTMENTS | ||||||||
(Identified Cost $47,792) | 47,792 | |||||||
| ||||||||
TOTAL INVESTMENTS — 98.0% (Identified Cost $95,788) |
| $94,398 | (1) | |||||
Other assets and liabilities, |
| 1,953 | ||||||
|
| |||||||
NET ASSETS — 100.0% | $96,351 | |||||||
|
| |||||||
Footnote Legend:
(1) | Federal Income Tax Information: For tax information at October 31, 2015, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. |
(2) | Security in default. |
(3) | Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015. |
(4) | 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 October 31, 2015, these securities amounted to a value of $13,035 or 13.5% of net assets. |
(5) | 86% of the income received was in cash and 14% in PIK. |
(6) | 54% of the income received was in cash and 46% in PIK. |
(7) | Security in default, interest payments are being received during the bankruptcy proceedings. |
(8) | Non-income producing. |
Abbreviations: | ||
LLC PIK REIT | Limited Liability Company Payment in Kind Real Estate Investment Trust | |
Currencies: | ||
EUR KRW TWD | European Currency Unit New Taiwan Dollar |
Country Weightings (Unaudited)† | ||||
United States | 95 | % | ||
Canada | 2 | |||
Argentina | 2 | |||
Luxembourg | 1 | |||
Total | 100 | % | ||
†% of total investments as of October 31, 2015. |
| |||
See Notes to Financial Statements.
68
Table of Contents
VIRTUS CREDIT OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS (Concluded)
OCTOBER 31, 2015
($ are reported in thousands)
Forward foreign currency exchange contracts as of October 31, 2015 were as follows:
Currency Purchased | Value | Currency Sold | Value | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||
USD | 567 | EUR | 500 | JPMorgan Chase Bank N.A. | 12/21/15 | $ 16 | ||||||||||
USD | 1,000 | KRW | 1,187,000 | JPMorgan Chase Bank N.A. | 4/05/16 | (37) | ||||||||||
USD | 1,000 | TWD | 32,950 | JPMorgan Chase Bank N.A. | 4/06/16 | (17) | ||||||||||
| ||||||||||||||||
Total | $ (38) |
Over-the-counter credit default swap- buy protection(1) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Pay Rate | Expiration Date | Notional Amount(2) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||
Grupo Isolux Corsan Financial | JPMorgan Chase Bank N.A. | 5% | 9/20/20 | 1,000 EUR | $512 | $508 | $4 | |||||||
| ||||||||||||||
Total | $512 | $508 | $4 | |||||||||||
|
|
|
(1)If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying investments comprising the referenced index or (ii) receive a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
(2)The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
The following table provides a summary of input used to value the Fund’s investment as of October 31, 2015 ( See security Valuation Note 1B in the Notes to Schedule of Investments):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | ||||||||||
Assets: | ||||||||||||
Debt Securities: | ||||||||||||
Foreign Government Securities | $ 1,891 | $ — | $ 1,891 | |||||||||
Mortgage-Backed Securities | 893 | — | 893 | |||||||||
Corporate Bonds | 31,386 | — | 31,386 | |||||||||
Convertible Bonds | 1,705 | — | 1,705 | |||||||||
Loan Agreements | 10,169 | — | 10,169 | |||||||||
Claims | 562 | — | 562 | |||||||||
Short-Term Investments | 47,792 | 47,792 | — | |||||||||
Foreign currency exchange contracts | 16 | — | 16 | |||||||||
Over the Counter Credit Default Swap | 512 | — | 512 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | $94,926 | $47,792 | $47,134 | |||||||||
|
|
|
|
|
| |||||||
Liabilities: | ||||||||||||
Foreign currency exchange contracts | (54) | — | (54) | |||||||||
|
|
|
|
|
| |||||||
Total Liabilities | $ (54) | $ — | $ (54) | |||||||||
|
|
|
|
|
|
There were no transfers between level 1 and level 2 related to securities held at October 31, 2015.
There are no Level 3 (significant unobservable input) priced securities.
See Notes to Financial Statements.
69
Table of Contents
VIRTUS MULTI-STRATEGY TARGET RETURN FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
FOREIGN GOVERNMENT SECURITIES—12.1% | ||||||||||
Italy Buoni Poliennali | $ | 2,230 | $ 3,573 | |||||||
Korea Treasury Bond
|
| 3,415,000
|
|
| 3,032
|
| ||||
| ||||||||||
TOTAL FOREIGN GOVERNMENT SECURITIES |
| |||||||||
(Identified Cost $6,215) |
| 6,605 | ||||||||
| ||||||||||
MORTGAGED-BACKED SECURITIES—2.4% |
| |||||||||
Non-Agency—2.4% | ||||||||||
Government National Mortgage Association | 184 | 169 | ||||||||
3.000%, 7/16/57(2) | 1,358 | 1,158 | ||||||||
|
| |||||||||
| 1,327
|
| ||||||||
| ||||||||||
TOTAL MORTGAGED-BACKED SECURITIES |
| |||||||||
(Identified Cost $1,311) |
| 1,327 | ||||||||
| ||||||||||
SHARES | ||||||||||
EXCHANGE-TRADED FUNDS—4.1% |
| |||||||||
Exchange Traded Funds—4.1% | ||||||||||
Consumer Discretionary | 13,950 | 1,129 | ||||||||
iShares MSCI Poland | 25,999 | 531 | ||||||||
iShares MSCI Turkey ETF(3) | 13,750 | 554 | ||||||||
|
| |||||||||
|
2,214
|
| ||||||||
| ||||||||||
TOTAL EXCHANGE-TRADED FUNDS |
| |||||||||
(Identified Cost $2,190) |
| 2,214 | ||||||||
| ||||||||||
CONTRACTS | ||||||||||
PURCHASED OPTIONS—2.9% |
| |||||||||
Call Options—2.6% | ||||||||||
Call USD 1,000 versus Put CNH 6,500 | 10,000 | 23 | ||||||||
Call USD 12,450 versus Put CNH 84,230 Expiring 08/22/16 Strike | 124,500 | 151 |
CONTRACTS | VALUE | |||||||||
Call Options—continued |
| |||||||||
Call USD 220 versus Put INR 16,643 | 2,200 | $ 3 | ||||||||
Call USD 270 versus Put JPY 29,192 | 2,700 | 24 | ||||||||
Call USD 3,000 versus Put INR 222,000 | 30,000 | 31 | ||||||||
Call USD 5,100 versus Put JPY 551,718 | 51,000 | 451 | ||||||||
Consumer Discretionary Select SPDR Fund | 1,750 | 42 | ||||||||
Euro Stoxx 50 | 100 | 259 | ||||||||
Euro Stoxx 50 | 125 | 220 | ||||||||
iShares FTSE A 50 China Index | 515 | 3 | ||||||||
Nikkei Future Index | 35 | 100 | ||||||||
Nikkei Future Index | 183 | 86 | ||||||||
|
| |||||||||
|
1,393 |
| ||||||||
|
| |||||||||
Put Options—0.3% | ||||||||||
Put EUR 3,450 versus Call USD 3,692 | 34,500 | 184 | ||||||||
| ||||||||||
TOTAL PURCHASED OPTIONS (Identified Cost $2,066) |
| 1,577 | ||||||||
| ||||||||||
CONTRACTS | VALUE | |||||||||
Put Options—continued |
| |||||||||
PURCHASED SWAPTIONS—1.2% | ||||||||||
Put Swaptions—1.2% | ||||||||||
30-Year GBP Interest Rate Swap | 320 | $ 188 | ||||||||
30-Year GBP Interest Rate Swap | 30 | 17 | ||||||||
30-Year USD Interest Rate Swap | 1,000 | 469 | ||||||||
|
| |||||||||
|
674
|
| ||||||||
| ||||||||||
TOTAL PURCHASED SWAPTIONS (Identified Cost $789) |
| 674 | ||||||||
| ||||||||||
TOTAL LONG TERM INVESTMENTS — 22.7% |
| |||||||||
(Identified Cost $12,571) |
| 12,397 | ||||||||
| ||||||||||
SHARES | ||||||||||
SHORT-TERM INVESTMENTS—74.2% | ||||||||||
Money Market Mutual Funds—74.2% | ||||||||||
BlackRock Liquidity | 40,539,391 | 40,539 | ||||||||
|
| |||||||||
| ||||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||||
(Identified Cost $40,539) |
| 40,539 | ||||||||
| ||||||||||
TOTAL INVESTMENTS, BEFORE WRITTEN OPTIONS — 96.9% |
| |||||||||
(Identified Cost $53,110) |
| 52,936 | (1) | |||||||
| ||||||||||
CONTRACTS | ||||||||||
WRITTEN OPTIONS—(1.0)% | ||||||||||
Call Options—(1.0)% | ||||||||||
Call EUR 2,300 versus | (23,000) | (224) |
See Notes to Financial Statements.
70
Table of Contents
VIRTUS MULTI-STRATEGY TARGET RETURN FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
CONTRACTS | VALUE | |||||||||||
Call Options—continued | ||||||||||||
Call INR 14,443 versus Put USD 220 | (2,200) | $ (14 | ) | |||||||||
Call USD 1,000 versus Put CNH 7,020 | (10,000) | (10 | ) | |||||||||
Call USD 12,450 versus Put CNH 90,970 | (124,500) | (73 | ) | |||||||||
Call USD 3,000 versus Put INR 192,000 | (30,000) | (206 | ) | |||||||||
iShares FTSE A 50 China Index | (515) | (3 | ) | |||||||||
|
| |||||||||||
|
(530
|
)
| ||||||||||
| ||||||||||||
TOTAL WRITTEN OPTIONS (Proceeds $(625)) | (530 | )(1) | ||||||||||
| ||||||||||||
TOTAL INVESTMENTS NET OF WRITTEN OPTIONS — 95.9% (Identified Cost $52,485) | $52,406 | |||||||||||
Other assets and liabilities, | 2,230 | |||||||||||
|
| |||||||||||
NET ASSETS — 100.0%
|
|
$54,636
|
| |||||||||
|
| |||||||||||
Footnote Legend: | ||||||||||||
(1) Federal Income Tax Information: For tax information at October 31, 2015, see Note 11 Federal Income Tax Information in the Notes to Financial Statements. (2) Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015. (3) These Funds are public funds and the prospectus and annual reports are publicly available. (4) Strike price not reported in thousands. |
|
Abbreviations: | ||||
CBT ETF S&P SPDR | Chicago Board of Trade Exchange Traded Fund Standard & Poor’s Standard & Poor’s Depositary Receipt | |||
Currencies: | ||||
AUD CNH EUR GBP INR JPY KRW MXN SGD USD | Australian Dollar Chinese Yuan European Currency Unit British Pound Indian Rupee Japanese Yen Korean Won Mexican Peso Singapore Dollar United States Dollar |
Country Weightings (Unaudited)† | ||||
United States |
|
86 |
% | |
Italy | 7 | |||
Korea | 5 | |||
Germany | 1 | |||
Other | 1 | |||
Total |
|
100 |
% | |
†% of total investments, net of written options, as of October 31, 2015. |
| |||
See Notes to Financial Statements.
71
Table of Contents
VIRTUS MULTI-STRATEGY TARGET RETURN FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
Futures contracts as of October 31, 2015 were as follows:
Issue | Expiration | Contracts Purchased/(Sold) | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
DAX Index Future | December 2015 | 6 | $ 1,793 | $ 114 | ||||||||||||
Euro STOXX 50 | December 2015 | 77 | 2,895 | 178 | ||||||||||||
Euro-BTP Future | December 2015 | (46) | (7,060) | (275) | ||||||||||||
FTSE 100 Index Future | December 2015 | (29) | (2,831) | (125) | ||||||||||||
NASDAQ 100 E-Mini | December 2015 | 12 | 1,114 | 95 | ||||||||||||
Russell 2000 E-Mini Index | December 2015 | (43) | (4,981) | (80) | ||||||||||||
S&P 500 E-Mini Future | December 2015 | 54 | 5,599 | 310 | ||||||||||||
U.S. 2 Year Treasury Note (CBT) | December 2015 | (133) | (29,081) | 19 | ||||||||||||
Total | $ 236 |
Forward foreign currency exchange contracts as of October 31, 2015 were as follows:
Currency Purchased | Value | Currency Sold | Value | Counterparty | Settlement Date | Unrealized Appreciation (Depreciation) | ||||||||||||
EUR* | 315 | USD | 358 | BNP Paribas | 12/18/15 | $ (11) | ||||||||||||
JPY* | 120,105 | USD | 1,000 | Nomura Global Financial Products, Inc. | 12/18/15 | (4) | ||||||||||||
USD* | 2,500 | AUD | 3,525 | Nomura Global Financial Products, Inc. | 12/18/15 | (7) | ||||||||||||
USD* | 150 | AUD | 211 | Citibank | 12/18/15 | — (a) | ||||||||||||
USD* | 3,400 | EUR | 3,000 | BNP Paribas | 12/18/15 | 98 | ||||||||||||
USD* | 1,218 | EUR | 1,075 | BNP Paribas | 12/18/15 | 35 | ||||||||||||
USD* | 620 | EUR | 550 | Citibank | 12/18/15 | 15 | ||||||||||||
USD* | 584 | EUR | 518 | Citibank | 12/18/15 | 14 | ||||||||||||
USD* | 555 | EUR | 490 | BNP Paribas | 12/18/15 | 16 | ||||||||||||
USD* | 521 | EUR | 460 | BNP Paribas | 12/18/15 | 15 | ||||||||||||
USD* | 487 | EUR | 430 | BNP Paribas | 12/18/15 | 14 | ||||||||||||
USD* | 37 | EUR | 33 | Deutsche Bank AG | 12/18/15 | — (a) | ||||||||||||
USD* | 1,000 | JPY | 120,142 | BNP Paribas | 12/18/15 | 3 | ||||||||||||
USD* | 2,904 | KRW | 3,436,241 | Citibank | 12/18/15 | (105) | ||||||||||||
USD* | 2,500 | MXN | 42,194 | Citibank | 12/18/15 | (45) | ||||||||||||
USD* | 150 | MXN | 2,512 | BNP Paribas | 12/18/15 | (1) | ||||||||||||
USD* | 2,550 | SGD | 3,639 | BNP Paribas | 12/18/15 | (43) | ||||||||||||
USD* | 135 | SGD | 189 | Citibank | 12/18/15 | — (a) | ||||||||||||
Total | $ (6) |
Footnote Legend:
(a) Amount is less than $500.
* Non deliverable forward. See Note 3B in the Notes to Financial Statements.
Over-the-counter inflation swaps outstanding as of October 31, 2015 were as follows:
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid ( Received) | Unrealized | |||||||||
1.760%(a) |
CPI Urban |
Nomura Global Financial |
7/23/20 |
5,250 USD |
|
$77 |
|
$ — |
$77 | |||||||
2.068%(b) | CPI Urban Consumer NSA | Nomura Global Financial Products, Inc. | 7/23/25 | 5,250 USD | (149 | ) | — | (149) | ||||||||
Total | $(72 | ) | $ — | $(72) | ||||||||||||
|
|
|
|
Footnote Legend:
(a) Fund pays inflation and receives the fixed rate.
(b) Fund pays the fixed rate and receives inflation.
See Notes to Financial Statements.
72
Table of Contents
VIRTUS MULTI-STRATEGY TARGET RETURN FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
Centrally cleared interest rate swaps outstanding as of October 31, 2015 were as follows:
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized Appreciation | |||||||||||
1.295%(a) |
EUR-Euribor |
JPMorgan Chase Bank N.A. |
7/25/26 |
6,800(b) |
EUR |
|
$178 |
|
$ — |
$178 | ||||||||
1.715%(c) | EUR-Euribor | JPMorgan Chase Bank N.A. | 7/25/46 | 2,750(b) | EUR | (122 | ) | — | (122) | |||||||||
Total | $56 | $ — | $56 | |||||||||||||||
|
|
|
| |||||||||||||||
Footnote Legend: (a) Fund pays the floating rate and receives the fixed rate. (b) Represents interest rate swaps whose effective date of commencement of accruals and cash flows occur subsequent to October 31, 2015. (c) Fund pays the fixed rate and receives the floating rate.
Over-the-counter interest rate swaps outstanding as of October 31, 2015 were as follows: | ||||||||||||||||||
Fixed Rate | Floating Rate | Counterparty | Expiration Date | Notional Amount | Value | Premiums (Received) | Unrealized Appreciation (Depreciation) | |||||||||||
3.870%(a) |
6-Month AUD-BBR-BBSW |
Nomura Global Financial Products, Inc. |
7/24/25 |
990(b) |
AUD |
|
$12 |
|
$ — |
$12 | ||||||||
3.955%(a) | 6-Month AUD-BBR-BBSW | Nomura Global Financial Products, Inc. | 7/22/25 | 11,500(b) | AUD | 163 | — | 163 | ||||||||||
6.855%(a) | 28-Day MXN TIIE | Deutsche Bank AG | 7/14/21 | 150,000(b) | MXN | 57 | — | 57 | ||||||||||
6.890%(a) | 28-Day MXN TIIE | Deutsche Bank AG | 7/16/21 | 40,000(b) | MXN | 17 | — | 17 | ||||||||||
Total | $249 | $ — | $249 | |||||||||||||||
|
|
|
|
Footnote Legend:
(a) Fund pays the floating rate and receives the fixed rate.
(b) Represents interest rate swaps whose effective date of commencement of accruals and cash flows occur subsequent to October 31, 2015.
Over-the-counter variance swaps outstanding as of October 31, 2015 were as follows:
Reference Entity | Variance Strike Price | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||
DJ Euro Stoxx 50(a) |
$22.90 |
BNP Paribas |
6/16/17 |
83 |
EUR |
|
$318 |
|
$ — |
$318 | ||||||||
DJ Euro Stoxx 50(b) | 21.31 | BNP Paribas | 6/17/16 | 37 | EUR | (169 | ) | — | (169) | |||||||||
S&P 500 Composite Stock Price Index(b) | 22.25 | BNP Paribas | 12/18/17 | 10 | USD | 2 | — | 2 | ||||||||||
DJ Euro Stoxx 50(a) | 24.25 | BNP Paribas | 12/17/17 | 9 | EUR | 20 | — | 20 | ||||||||||
Total | $171 | $ — | $171 | |||||||||||||||
|
|
|
|
Footnote Legend:
(a) Fund pays the fixed strike price and receives the variance payment.
(b) Fund pays the variance payment and receives the fixed strike price.
Over-the-counter total return swaps outstanding as of October 31, 2015 were as follows:
Reference Entity | Floating Rate(a) | Counterparty | Expiration Date | Notional Amount | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||
SPDR S&P Biotech ETF |
3-Month LIBOR |
BNP Paribas |
1/06/16 |
525 |
USD |
|
$ (53) |
|
$ — |
$ (53) | ||||||||
Stoxx 600 Tech Index | N/A | Citibank | 12/18/15 | 897 | EUR | (99) | — | (99) | ||||||||||
Total |
|
$ (152) |
|
$ — |
$ (152) | |||||||||||||
|
|
|
|
Footnote Legend:
(a) The Fund pays the floating rate (+/- a spread) and receives the total return of the reference entity.
See Notes to Financial Statements.
73
Table of Contents
VIRTUS MULTI-STRATEGY TARGET RETURN FUND
SCHEDULE OF INVESTMENTS (Concluded)
OCTOBER 31, 2015
($ are reported in thousands)
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | ||||||||||
Assets: | ||||||||||||
Debt Securities: | ||||||||||||
Foreign Government Securities | $ 6,605 | $ — | $ 6,605 | |||||||||
Mortgaged-Backed Securities | 1,327 | — | 1,327 | |||||||||
Equity Securities: | ||||||||||||
Exchange-Traded Funds | 2,214 | 2,214 | — | |||||||||
Short-Term Investments | 40,539 | 40,539 | — | |||||||||
Purchased Options | 1,577 | 710 | 867 | |||||||||
Purchased Swaptions | 674 | — | 674 | |||||||||
Futures Contracts | 716 | 716 | — | |||||||||
Foreign Currency Exchange Contracts | 210 | — | 210 | |||||||||
Over-the-Counter Inflation Swap | 77 | — | 77 | |||||||||
Centrally Cleared Interest Rate Swap | 178 | — | 178 | |||||||||
Over-the-Counter Interest Rate Swap | 249 | — | 249 | |||||||||
Over-the-Counter Variance Swap | 340 | — | 340 | |||||||||
|
|
|
|
|
| |||||||
Total Assets | 54,706 | 44,179 | 10,527 | |||||||||
|
|
|
|
|
| |||||||
Liabilities: | ||||||||||||
Written Options | (530) | (3) | (527) | |||||||||
Futures Contracts | (480) | (480) | — | |||||||||
Foreign Currency Exchange Contracts | (216) | — | (216) | |||||||||
Over-the-Counter Inflation Swap | (149) | — | (149) | |||||||||
Centrally Cleared Interest Rate Swap | (122) | — | (122) | |||||||||
Over-the-Counter Variance Swap | (169) | — | (169) | |||||||||
Over-the-Counter Total Return Swap | (152) | — | (152) | |||||||||
|
|
|
|
|
| |||||||
Total Liabilities | $(1,818) | $ (483) | $(1,335) | |||||||||
|
|
|
|
|
|
There were no transfers between level 1 and level 2 related to securities held at October 31, 2015.
There are no Level 3 (significant unobservable input) priced securities.
See Notes to Financial Statements.
74
Table of Contents
VIRTUS SELECT MLP AND ENERGY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2015
($ are reported in thousands)
SHARES | VALUE | |||||||||
MASTER LIMITED PARTNERSHIPS AND RELATED COMPANIES—88.0% |
| |||||||||
Diversified—14.3% | ||||||||||
Enterprise Products Partners LP | 2,400 | $ | 66 | |||||||
Kinder Morgan, Inc. | 13,500 | 369 | ||||||||
ONEOK, Inc. | 2,800 | 95 | ||||||||
Williams Cos, Inc. (The) | 3,000 | 119 | ||||||||
Williams Partners LP | 1,600 | 54 | ||||||||
|
| |||||||||
|
703 |
| ||||||||
|
| |||||||||
Downstream/Other—5.7% | ||||||||||
Cheniere Energy, Inc.(2) | 1,300 | 64 | ||||||||
Phillips 66 | 1,200 | 107 | ||||||||
Tesoro Corp. | 1,000 | 107 | ||||||||
|
| |||||||||
|
278 |
| ||||||||
|
| |||||||||
Electric, LDC & Power—11.7% | ||||||||||
Dominion Resources, Inc. | 2,000 | 143 | ||||||||
NextEra Energy Partners LP | 3,900 | 102 | ||||||||
NextEra Energy, Inc. | 1,500 | 154 | ||||||||
Sempra Energy | 1,700 | 174 | ||||||||
|
| |||||||||
|
573 |
| ||||||||
|
| |||||||||
Gathering/Processing—12.5% | ||||||||||
Antero Midstream Partners LP | 2,400 | 57 | ||||||||
EnLink Midstream LLC | 5,000 | 99 | ||||||||
EQT GP Holdings LP | 4,000 | 106 | ||||||||
MarkWest Energy Partners LP | 1,400 | 61 | ||||||||
Rice Midstream Partners LP | 3,300 | 45 | ||||||||
Targa Resources Corp. | 3,000 | 171 | ||||||||
Western Gas Partners LP | 1,400 | 72 | ||||||||
|
| |||||||||
|
611 |
| ||||||||
|
| |||||||||
Marine Shipping—4.8% | ||||||||||
Gaslog Partners LP | 4,500 | 83 | ||||||||
Knot Offshore Partners LP | 3,500 | 57 | ||||||||
Teekay Corp. | 3,000 | 97 | ||||||||
|
| |||||||||
|
237 |
| ||||||||
|
| |||||||||
Natural Gas Pipelines—14.7% | ||||||||||
Columbia Pipeline Group, Inc. | 6,000 | 125 | ||||||||
Dominion Midstream Partners LP(2) | 2,000 | 65 | ||||||||
Energy Transfer Partners LP | 2,200 | 97 | ||||||||
SHARES | VALUE | |||||||||
Natural Gas Pipelines—continued | ||||||||||
Energy Transfer Equity LP | 4,300 | $ | 93 | |||||||
Spectra Energy Corp. | 5,200 | 149 | ||||||||
Tallgrass Energy GP LP | 8,000 | 191 | ||||||||
|
| |||||||||
|
720 |
| ||||||||
|
| |||||||||
Petroleum Transportation & Storage—24.3% | ||||||||||
Enbridge Energy Management LLC(2) | 6,800 | 185 | ||||||||
Enbridge, Inc. | 4,300 | 184 | ||||||||
Genesis Energy LP | 2,000 | 81 | ||||||||
Magellan Midstream Partners LP | 1,200 | 77 | ||||||||
NuStar Energy LP | 1,000 | 51 | ||||||||
Plains GP Holdings LP Class A | 8,200 | 127 | ||||||||
SemGroup Corp. Class A | 1,500 | 68 | ||||||||
Shell Midstream Partners LP | 3,100 | 106 | ||||||||
Sunoco Logistics Partners LP | 3,600 | 104 | ||||||||
Tesoro Logistics LP | 1,000 | 56 | ||||||||
VTTI Energy Partners LP | 7,700 | 153 | ||||||||
|
| |||||||||
|
1,192 |
| ||||||||
| ||||||||||
TOTAL MASTER LIMITED PARTNERSHIPS AND RELATED COMPANIES |
| |||||||||
(Identified Cost $4,427) | 4,314 | |||||||||
| ||||||||||
TOTAL LONG TERM |
| |||||||||
(Identified Cost $4,427) | 4,314 | |||||||||
| ||||||||||
SHORT-TERM INVESTMENTS—12.1% | ||||||||||
Money Market Mutual Funds—12.1% | ||||||||||
BlackRock Liquidity Funds TempFund Portfolio - Institutional Shares (Seven-day effective yield 0.120%) | 590,436 | 590 | ||||||||
| ||||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||||
(Identified Cost $590) | 590 | |||||||||
| ||||||||||
TOTAL INVESTMENTS — 100.1% | ||||||||||
(Identified Cost $5,017) | $4,904 | (1) | ||||||||
Other assets and liabilities, net — (0.1)% |
| (5 | ) | |||||||
|
| |||||||||
NET ASSETS — 100.0% | $4,899 | |||||||||
|
|
Footnote Legend:
(1) | Federal Income Tax Information: For tax |
information at October 31, 2015, see Note 11 |
Federal Income Tax Information in the Notes to |
Financial Statements. |
(2) | Non-income producing. |
Abbreviations:
LLC | Limited Liability Company | |
LP | Limited Partnership |
Country Weightings (Unaudited)† | ||
United States | 88% | |
United Kingdom | 4 | |
Canada | 4 | |
Bermuda | 2 | |
Monaco | 2 | |
Total | 100% | |
†% of total investments, as of October 31, 2015. |
Ownership Structure (Unaudited)†,†† | ||
Midstream MLP | 24% | |
Pure Play General Partner | 24 | |
Embedded General Partners | 17 | |
MLP Affiliates & Other | 9 | |
Major Midstream Companies | 8 | |
Foreign LP | 6 | |
Cash | 12 | |
Total | 100% | |
†† Midstream MLPs are publicly traded limited partnerships and limited liability companies that are treated as partnerships for federal income tax purposes and operate and own assets used in transporting, storing, gathering, processing, treating, or marketing of natural gas, natural gas liquids, crude oil, and refined products. Foreign LPs are offshore entities organized as partnerships or limited liability companies but elect to be treated as corporations for U.S. federal income tax purposes. MLP Affiliates & Other consist of iShares/LLCs and Yieldcos. iShares/ LLCs are limited liability companies which hold investments in limited partner interests and issue distributions in the form of additional shares, also known as paid-in-kind (PIK) distributions.Yieldcos are entities structured similar to an MLP but without possession of assets that would qualify for pass-through tax treatment and thus are not treated as partnerships for federal income tax purposes. Pure-Play GPs are general partners of MLPs structured as C-corporations for federal income tax purposes with either direct economic incentive distribution rights to an underlying MLP or direct ownership in an affiliated general partner entity. Embedded GPs are general partners of
See Notes to Financial Statements.
75
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VIRTUS SELECT MLP AND ENERGY FUND
SCHEDULE OF INVESTMENTS (Concluded)
OCTOBER 31, 2015
($ are reported in thousands)
(Ownership Structure - Continued) MLPs structured as C-corporations for federal income tax purposes with ownership in other assets beyond sole economic interests in an MLP. Major Midstream Companies are entities that own and operate assets used in transporting, storing, gathering, processing, treating, or marketing of natural gas, natural gas liquids, crude oil, and refined products and structured as C-corporations for federal income tax purposes.
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | |||||||
Assets: | ||||||||
Equity Securities: | ||||||||
Master Limited Partnerships and Related Companies | $ 4,314 | $ 4,314 | ||||||
Short-Term Investments | 590 | 590 | ||||||
|
|
|
| |||||
Total Assets | $ 4,904 | $ 4,904 | ||||||
|
|
|
|
There were no transfers between level 1 and level 2 related to securities held at October 31, 2015.
There are no Level 2 (significant observable inputs) or Level 3 (significant unobservable inputs) priced securities.
See Notes to Financial Statements.
76
Table of Contents
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
U.S. GOVERNMENT SECURITIES—0.7% | ||||||||||
Non-Agency—0.7% | ||||||||||
United States Treasury Notes
| $
| 200
|
| $
| 200
|
| ||||
| ||||||||||
TOTAL U.S. GOVERNMENT SECURITIES |
| |||||||||
(Identified Cost $200) | 200 | |||||||||
| ||||||||||
FOREIGN GOVERNMENT SECURITIES—1.1% | ||||||||||
El Salvador Government International Bond 144A | 125 | 112 | ||||||||
Sri Lanka Government International Bond 144A
|
| 200
|
|
| 202
|
| ||||
| ||||||||||
TOTAL FOREIGN GOVERNMENT SECURITIES |
| |||||||||
(Identified Cost $336) | 314 | |||||||||
| ||||||||||
MUNICIPAL BONDS—0.6% | ||||||||||
Illinois—0.4% | ||||||||||
State of Illinois, Series A | 100 | 108 | ||||||||
Texas—0.2% | ||||||||||
University of Texas System/The
|
| 50
|
|
| 62
|
| ||||
| ||||||||||
TOTAL MUNICIPAL BONDS |
| |||||||||
(Identified Cost $169) | 170 | |||||||||
| ||||||||||
MORTGAGED-BACKED SECURITIES—11.4% | ||||||||||
Agency—2.4% | ||||||||||
American Homes 4 Rent 14-SFR2, C 144A 4.705%, 10/17/36(2) | 280 | 277 | ||||||||
American Homes 4 Rent 15-SFR2, C 144A | 100 | 101 | ||||||||
Home Equity Loan Trust 07-HSA3, AI4 | 135 | 137 |
PAR VALUE | VALUE | |||||||||
Agency—continued | ||||||||||
Structured Asset Securities Corp. Pass-Through Certificates Series 02-AL1, A3 | $ | 32 | $ | 31 | ||||||
VOLT XXII LLC 15-NPL4, A1 144A | 66 | 66 | ||||||||
VOLT XXXI LLC 15-NPL2, A1 144A | 88 | 88 | ||||||||
Non-Agency—9.0% | ||||||||||
Ameriquest Mortgage Securities, Inc. Asset-Backed Pass-Through Certificates 03-AR3, M4 | 45 | 44 | ||||||||
Banc of America Mortgage Trust 04-11, 5A1 | 123 | 125 | ||||||||
Bear Stearns Commercial Mortgage Securities Trust 07-PW15, AM | 50 | 51 | ||||||||
Citigroup Mortgage Loan Trust, Inc. 03-UP3, A2 | 43 | 45 | ||||||||
Citigroup Mortgage Loan Trust, Inc. 04-UST1, A3 | 16 | 16 | ||||||||
Credit Suisse Commercial Mortgage Trust 07-C5, A1AM | 100 | 102 | ||||||||
DBUBS Mortgage Trust 11-LC3A, D 144A | 200 | 210 | ||||||||
FNMA Connecticut Avenue Securities 14-C02, 2M2 | 350 | 312 | ||||||||
FREMF Mortgage Trust 15-K720, B 144A | 60 | 53 | ||||||||
PAR VALUE | VALUE | |||||||
Non-Agency—continued | ||||||||
GMACM Mortgage Loan Trust 05-AR2, 2A | $ | 116 | $ | 109 | ||||
GSR Mortgage Loan Trust 05-5F, B1 | 194 | 189 | ||||||
GSR Mortgage Loan Trust 07-1F, 2A2 | 23 | 22 | ||||||
Hilton USA Trust 13-HLT, EFX 144A | 250 | 252 | ||||||
MASTR Alternative Loan Trust 04-6, 7A1 | 130 | 132 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust 15-C26, C | 100 | 100 | ||||||
NAAC Reperforming Loan REMIC Trust Certificates 04-R3, A1 144A | 101 | 103 | ||||||
New Residential Mortgage Loan Trust 14-1A, A 144A | 127 | 130 | ||||||
Residential Asset Securitization Trust 05-A1, A3 | 265 | 268 | ||||||
Structured Asset Securities Corp. Mortgage Pass-Through Certificates 03-34A, 6A | 11 | 11 | ||||||
VOLT XXIX LLC 14-NP10, A1 144A | 202 | 201 | ||||||
VOLT XXXVII LLC 15-NP11, A1 144A
|
| 98
|
|
| 98
|
| ||
| ||||||||
TOTAL MORTGAGED-BACKED SECURITIES |
| |||||||
(Identified Cost $3,295) | 3,273 | |||||||
|
See Notes to Financial Statements.
77
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||
ASSET-BACKED SECURITIES—5.1% |
| |||||||
AVANT Loans Funding Trust 15-A, A 144A | $ | 117 | $ 117 | |||||
Carnow Auto | 250 | 249 | ||||||
Domino’s Pizza Master Issuer LLC 12-1A, | 92 | 95 | ||||||
Drive Auto | 130 | 130 | ||||||
DT Auto Owner Trust | 85 | 85 | ||||||
Exeter Automobile | 100 | 99 | ||||||
Exeter Automobile Receivables Trust | 125 | 125 | ||||||
Exeter Automobile | 130 | 127 | ||||||
Foursight Capital | 250 | 254 | ||||||
Leaf Receivables | 100 | 96 | ||||||
Wendys Funding LLC
|
| 80
|
|
| 80
|
| ||
| ||||||||
TOTAL ASSET-BACKED SECURITIES (Identified Cost $1,462) |
| 1,457 | ||||||
| ||||||||
CORPORATE BONDS—62.4% |
| |||||||
Consumer Discretionary—11.7% |
| |||||||
Argos Merger Sub, | 145 | 153 | ||||||
Boyd Gaming Corp. 9.000%, 7/1/20 | 75 | 81 | ||||||
6.875%, 5/15/23
|
| 65
|
|
| 69
|
|
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued |
| |||||||
CalAtlantic Group, Inc. | $ | 100 | $ 106 | |||||
CCO Holdings LLC / | 100 | 101 | ||||||
CCO Safari II LLC | 40 | 41 | ||||||
Cequel Communications | 105 | 101 | ||||||
5.125%, 12/15/21(2) | 45 | 43 | ||||||
Clear Channel | 110 | 115 | ||||||
CSC Holdings LLC | 125 | 110 | ||||||
DISH DBS Corp. | 120 | 111 | ||||||
Hyundai Capital | 100 | 100 | ||||||
iHeartCommunications, Inc. | 100 | 85 | ||||||
Intelsat Jackson | 95 | 79 | ||||||
Isle of Capri Casinos, | 70 | 74 | ||||||
Jarden Corp. 144A | 35 | 36 | ||||||
Landry’s, Inc. 144A | 175 | 189 | ||||||
Lennar Corp. | 100 | 104 | ||||||
4.875%, 12/15/23 | 30 | 30 | ||||||
MDC Holdings, Inc. 5.500%, 1/15/24 | 95 | 97 | ||||||
Meritor, Inc. | 125 | 124 | ||||||
MGM Resorts | 130 | 133 | ||||||
Mohegan Tribal | 25 | 26 | ||||||
MPG Holdco I, Inc. 7.375%, 10/15/22 | 60 | 64 |
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued |
| |||||||
New York University | $ | 25 | $ 24 | |||||
Omega US Sub LLC | 130 | 123 | ||||||
Party City Holdings, | 10 | 10 | ||||||
Penn National | 70 | 72 | ||||||
Pinnacle | 150 | 161 | ||||||
RCN Telecom Services | 95 | 100 | ||||||
Scientific Games | 145 | 147 | ||||||
Signet UK Finance | 75 | 75 | ||||||
Station Casinos LLC | 150 | 161 | ||||||
Toll Brothers Finance | 100 | 108 | ||||||
4.875%, 11/15/25 | 70 | 70 | ||||||
TRI Pointe Holdings, | 130 | 131 | ||||||
|
| |||||||
|
3,354 |
| ||||||
|
| |||||||
Consumer Staples—1.4% |
| |||||||
Dole Food Co., Inc. | 85 | 85 | ||||||
Pilgrim’s Pride Corp. | 25 | 26 | ||||||
Rite Aid Corp. | 120 | 129 | ||||||
Rite Aid Corp. 144A | 20 | 22 | ||||||
Safeway, Inc. | 35 | 34 | ||||||
Tops Holding LLC / | 110 | 115 | ||||||
|
| |||||||
|
411 |
| ||||||
|
|
See Notes to Financial Statements.
78
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||
Energy—5.8% |
| |||||||
Antero Resources | $ | 70 | $ 65 | |||||
Blue Racer Midstream | 100 | 94 | ||||||
Crestwood Midstream | 70 | 60 | ||||||
Enbridge Energy | 15 | 15 | ||||||
EP Energy LLC / | 140 | 107 | ||||||
FTS International, Inc. | 55 | 38 | ||||||
Gulfport Energy Corp. | 45 | 45 | ||||||
Halcon Resources | 40 | 34 | ||||||
Helmerich & Payne | 55 | 56 | ||||||
Kinder Morgan, | 55 | 56 | ||||||
Kinder Morgan, | 60 | 59 | ||||||
MarkWest Energy | 105 | 100 | ||||||
Newfield Exploration | 130 | 123 | ||||||
NGL Energy Partners | 100 | 93 | ||||||
QGOG Constellation | 200 | 102 | ||||||
PAR VALUE | VALUE | |||||||
Energy—continued |
| |||||||
Regency Energy | $ | 100 | $ 97 | |||||
Sabine Pass | 100 | 100 | ||||||
SM Energy Co. | 100 | 98 | ||||||
Sunoco LP / Sunoco | 195 | 197 | ||||||
Transocean, Inc. | 140 | 140 | ||||||
|
| |||||||
|
1,679 |
| ||||||
|
| |||||||
Financials—16.0% |
| |||||||
Air Lease Corp. | 50 | 50 | ||||||
Aircastle, Ltd. | 155 | 164 | ||||||
Allstate Corp. (The) | 115 | 120 | ||||||
American Campus | 20 | 20 | ||||||
Ares Finance Co. II | 85 | 86 | ||||||
Aviation Capital Group | 40 | 40 | ||||||
Avis Budget Car | 130 | 131 | ||||||
Banco Internacional | 115 | 124 | ||||||
Bank of America Corp. | 60 | 60 | ||||||
Bank of Georgia JSC | 200 | 209 | ||||||
Block Financial LLC | 80 | 81 | ||||||
Brixmor Operating | 30 | 30 | ||||||
Capital One Financial | 85 | 85 |
PAR VALUE | VALUE | |||||||
Financials—continued |
| |||||||
Citizens Financial | $ | 70 | $ 69 | |||||
Corporate Office | 65 | 60 | ||||||
Corrections Corp. of America REIT | 155 | 158 | ||||||
CyrusOne LP / | 105 | 109 | ||||||
Digital Delta Holdings | 100 | 100 | ||||||
Digital Realty Trust LP | 45 | 45 | ||||||
Discover Financial | 75 | 75 | ||||||
DuPont Fabros | 65 | 69 | ||||||
ESH Hospitality, Inc. | 65 | 65 | ||||||
First Cash Financial | 60 | 60 | ||||||
First Niagara Financial Group, Inc. | 130 | 146 | ||||||
FS Investment Corp. | 130 | 131 | ||||||
Genworth Holdings, | 70 | 53 | ||||||
GLP Capital LP / GLP | 85 | 87 | ||||||
Guanay Finance, Ltd. | 250 | 252 | ||||||
Healthcare Realty | 40 | 39 | ||||||
Hertz Corp./The | 111 | 115 | ||||||
Hospitality Properties | 125 | 122 | ||||||
iStar Financial, Inc. | 110 | 108 | ||||||
Kilroy Realty LP | 145 | 147 |
See Notes to Financial Statements.
79
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR | VALUE | |||||
Financials—continued | ||||||
McGraw Hill Financial, | $ 53 | $ 54 | ||||
4.000%, 6/15/25(2) | 65 | 65 | ||||
National Retail | 35 | 35 | ||||
Nationstar Mortgage | 65 | 60 | ||||
Nordea Bank AB 144A | 200 | 204 | ||||
PKO Finance AB (PKO | 200 | 209 | ||||
Sabra Health Care LP / | 65 | 68 | ||||
Select Income REIT | 100 | 95 | ||||
Springleaf Finance | 80 | 80 | ||||
TIAA Asset | 110 | 112 | ||||
Ukreximbank Via Biz Finance PLC 144A | 150 | 137 | ||||
Ventas Realty LP | 80 | 80 | ||||
Voya Financial, Inc. | 50 | 51 | ||||
Welltower, Inc. | 65 | 64 | ||||
York Risk Services Holding Corp. 144A | 80 | 71 | ||||
| ||||||
4,595 | ||||||
| ||||||
Health Care—6.5% | ||||||
AbbVie, Inc. | 35 | 34 | ||||
4.500%, 5/14/35 | 50 | 48 | ||||
Acadia Healthcare Co., | 70 | 70 | ||||
Acadia Healthcare Co., | 20 | 20 | ||||
Alere, Inc. 144A | 50 | 52 |
PAR | VALUE | |||||
Health Care—continued | ||||||
Amsurg Corp. 5.625%, 7/15/22 | $ 60 | $ 59 | ||||
Concordia Healthcare | 100 | 88 | ||||
Emdeon, Inc. 144A | 125 | 123 | ||||
Endo Finance LLC / | 80 | 79 | ||||
Fresenius US Finance | 35 | 36 | ||||
HCA, Inc. | 55 | 62 | ||||
5.375%, 2/1/25 | 135 | 139 | ||||
HealthSouth Corp. 144A 5.750%, 11/1/24(2) | 15 | 15 | ||||
5.750%, 9/15/25(2) | 110 | 109 | ||||
Hologic, Inc. 144A | 10 | 10 | ||||
Jaguar Holding Co. II / Pharmaceutical | 80 | 80 | ||||
JLL/Delta Dutch | 60 | 61 | ||||
Mallinckrodt | 5 | 5 | ||||
5.625%, 10/15/23(2) | 175 | 165 | ||||
5.500%, 4/15/25(2) | 5 | 5 | ||||
Owens & Minor, Inc. | 20 | 20 | ||||
Quintiles Transnational Corp. 144A | 65 | 67 | ||||
Sterigenics-Nordion | 95 | 96 | ||||
Surgical Care | 109 | 110 | ||||
Tenet Healthcare Corp. 4.750%, 6/1/20 | 75 | 77 | ||||
8.125%, 4/1/22 | 65 | 69 | ||||
PAR | VALUE | |||
Health Care—continued | ||||
Tenet Healthcare Corp. 144A | $ 25 | $ 25 | ||
Valeant | 50 | 44 | ||
7.250%, 7/15/22(2) | 75 | 68 | ||
5.500%, 3/1/23(2) | 35 | 30 | ||
| ||||
1,866 | ||||
| ||||
Industrials—8.1% | ||||
ADS Waste Holdings, | 80 | 84 | ||
ADT Corp./The | 155 | 168 | ||
Ahern Rentals, Inc. | 70 | 66 | ||
Air Canada | 274 | 282 | ||
American Airlines | 35 | 35 | ||
American Airlines | 109 | 110 | ||
Bombardier, Inc. 144A | 75 | 58 | ||
Builders FirstSource, | 120 | 128 | ||
10.750%, 8/15/23(2) | 45 | 47 | ||
CEB, Inc. 144A | 70 | 71 | ||
Continental Airlines | 99 | 102 | ||
Harland Clarke | 35 | 32 | ||
9.250%, 3/1/21(2) | 50 | 43 | ||
Hawaiian Airlines | 132 | 128 | ||
HD Supply, Inc. 144A | 150 | 158 |
See Notes to Financial Statements.
80
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||||
Industrials—continued |
| |||||||||
Masco Corp. | $ | 115 | $ 127 | |||||||
NCI Building Systems, Inc. 144A 8.250%, 1/15/23(2) | 75 | 80 | ||||||||
Penske Truck Leasing | 35 | 34 | ||||||||
TransDigm, Inc. 144A | 200 | 204 | ||||||||
United Airlines 2014-1 | 124 | 124 | ||||||||
United Rentals North | 110 | 110 | ||||||||
US Airways 12-2 Class C | 125 | 127 | ||||||||
|
| |||||||||
|
2,318 |
| ||||||||
|
| |||||||||
Information Technology—2.5% | ||||||||||
Dun & Bradstreet | 25 | 25 | ||||||||
Fidelity National | 10 | 10 | ||||||||
3.625%, 10/15/20 | 40 | 41 | ||||||||
4.500%, 10/15/22 | 60 | 61 | ||||||||
First Data Corp. | 115 | 131 | ||||||||
First Data Corp. 144A | 25 | 26 | ||||||||
Hewlett Packard | 30 | 30 | ||||||||
2.850%, 10/5/18(2) | 30 | 30 | ||||||||
3.600%, 10/15/20(2) | 5 | 5 | ||||||||
4.400%, 10/15/22(2) | 35 | 35 | ||||||||
4.900%, 10/15/25(2) | 35 | 35 | ||||||||
Interactive Data Corp. | 85 | 87 | ||||||||
Juniper Networks, Inc. 3.300%, 6/15/20 | 15 | 15 | ||||||||
KLA-Tencor Corp. 4.650%, 11/1/24 | 65 | 66 | ||||||||
Project Homestake | 65 | 61 | ||||||||
PAR VALUE | VALUE | |||||||||
Information Technology—continued |
| |||||||||
Verisk Analytics, Inc. | $ | 60 | $ 58 | |||||||
|
| |||||||||
|
716 |
| ||||||||
|
| |||||||||
Materials—4.3% | ||||||||||
Alpek SAB de CV 144A | 200 | 210 | ||||||||
ArcelorMittal | 55 | 48 | ||||||||
Berry Plastics Corp. | 120 | 119 | ||||||||
Beverage Packaging | 95 | 96 | ||||||||
Cascades, Inc. 144A | 125 | 122 | ||||||||
Cemex SAB de CV | 200 | 206 | ||||||||
Corp. Nacional del | 200 | 198 | ||||||||
INEOS Group Holdings | 200 | 201 | ||||||||
United States Steel | 50 | 36 | ||||||||
|
| |||||||||
|
1,236 |
| ||||||||
|
| |||||||||
Telecommunication Services—4.4% | ||||||||||
Altice Luxembourg SA 144A | 200 | 184 | ||||||||
AT&T, Inc. | 25 | 25 | ||||||||
CenturyLink, Inc. | 85 | 85 | ||||||||
Frontier Communi- | 120 | 108 | ||||||||
Frontier Communi- | 15 | 16 | ||||||||
10.500%, 9/15/22(2) | 15 | 16 | ||||||||
Intelsat Jackson | 30 | 28 | ||||||||
Level 3 Financing, Inc. | 145 | 154 |
PAR VALUE | VALUE | |||||||
Telecommunication Services—continued | ||||||||
Level 3 Financing, Inc. | $ | 30 | $ 30 | |||||
Neptune Finco Corp. | 200 | 211 | ||||||
Sprint | 175 | 150 | ||||||
T-Mobile USA, Inc. | 120 | 122 | ||||||
Windstream Corp. | 150 | 136 | ||||||
|
| |||||||
|
1,265 |
| ||||||
|
| |||||||
Utilities—1.7% | ||||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | 135 | 143 | ||||||
Calpine Corp. | 104 | 100 | ||||||
Majapahit Holding BV 144A | 100 | 113 | ||||||
NRG Yield Operating LLC | 75 | 69 | ||||||
TerraForm Power Operating LLC 144A | 70 | 65 | ||||||
|
| |||||||
|
490 |
| ||||||
| ||||||||
TOTAL CORPORATE BONDS (Identified Cost $18,314) |
| 17,930 | ||||||
| ||||||||
LOAN AGREEMENTS—14.3% | ||||||||
Consumer Discretionary—5.1% | ||||||||
Aristocrat Leisure Ltd. | 122 | 123 | ||||||
Caesars Entertainment Operating Company, | 79 | 71 | ||||||
Caesars Entertainment | 114 | 108 | ||||||
CBAC Borrower LLC, | 100 | 95 |
See Notes to Financial Statements.
81
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||
Consumer Discretionary—continued |
| |||||||
CDS U.S. Intermediate Holdings, Inc. | $ | 96 | $ 96 | |||||
CS Intermediate | 100 | 99 | ||||||
Delta 2 (Lux) S.a r.l | 85 | 84 | ||||||
Eldorado Resorts, Inc. 4.250%, 7/25/22 | 25 | 25 | ||||||
Graton Economic Developement | 39 | 39 | ||||||
iHeartCommuni- | 40 | 34 | ||||||
Infiltrator Water | 70 | 70 | ||||||
Laureate Education, | 65 | 56 | ||||||
Life Time Fitness, Inc. | 17 | 17 | ||||||
Mohegan Tribal | 104 | 103 | ||||||
Peppermill Casinos, | 124 | 124 | ||||||
Shingle Springs Tribal | 127 | 127 | ||||||
Staples, Inc. | 100 | 100 | ||||||
Virgin Media | 85 | 85 | ||||||
|
| |||||||
|
1,456 |
| ||||||
|
|
PAR VALUE | VALUE | |||||||
Consumer Staples—1.4% |
| |||||||
Albertson’s LLC Term | $ | 110 | $ 110 | |||||
Coty, Inc., Term Loan | 20 | 21 | ||||||
Galleria Co., Term | 40 | 41 | ||||||
Hostess Brands LLC, Second Lien Term | 135 | 135 | ||||||
Kronos, Inc., Second | 90 | 91 | ||||||
|
| |||||||
|
398 |
| ||||||
|
| |||||||
Energy—0.7% |
| |||||||
Chelsea Petroleum | 78 | 78 | ||||||
Jonah Energy LLC, | 155 | 122 | ||||||
|
| |||||||
|
200 |
| ||||||
|
| |||||||
Financials—0.1% | ||||||||
Capital Automotive LP, | 40 | 40 | ||||||
|
| |||||||
Health Care—2.8% | ||||||||
21St Century | 26 | 25 | ||||||
AMAG | 20 | 20 | ||||||
American Renal | 100 | 100 | ||||||
Ardent Legacy | 48 | 48 | ||||||
ConvaTec, Inc. | 3 | 3 | ||||||
Emdeon, Inc., Term | 66 | 65 | ||||||
PAR VALUE | VALUE | |||||||
Health Care—continued |
| |||||||
Greatbatch Ltd., Term | $ | 40 | $ 40 | |||||
Inventiv Health, Inc. | 155 | 155 | ||||||
MI Opco Holdings, | 54 | 54 | ||||||
NVA Holdings, Inc., | 70 | 69 | ||||||
Onex TSG Holdings II | 58 | 58 | ||||||
RCHP, Inc., First Lien | 100 | 99 | ||||||
Surgery Center | 70 | 70 | ||||||
|
| |||||||
|
806 |
| ||||||
|
| |||||||
Industrials—1.3% | ||||||||
Brickman Group Ltd., | 75 | 71 | ||||||
DynCorp International, | 79 | 77 | ||||||
Sedgwick Claims | 125 | 118 | ||||||
Waste Industries USA, | 100 | 100 | ||||||
|
| |||||||
|
366 |
| ||||||
|
| |||||||
Information Technology—1.7% |
| |||||||
Applied Systems, Inc., | 87 | 84 | ||||||
Deltek, Inc., First Lien | 2 | 2 | ||||||
First Data Corp. | 140 | 139 | ||||||
3.947%, 7/8/22 | 29 | 29 | ||||||
Mitchell International, | 150 | 150 |
See Notes to Financial Statements.
82
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ are reported in thousands)
PAR VALUE | VALUE | |||||||
Information Technology—continued |
| |||||||
Presidio, Inc. | $ | 56 | $ 55 | |||||
Riverbed Technology, | 30 | 30 | ||||||
|
| |||||||
|
489 |
| ||||||
|
| |||||||
Materials—0.4% | ||||||||
Univar USA, Inc. | 100 | 99 | ||||||
|
| |||||||
Telecommunication Services—0.4% | ||||||||
Crown Castle | 125 | 125 | ||||||
|
| |||||||
Utilities—0.4% | ||||||||
NRG Energy, Inc.
|
| 120
|
|
| 117
|
| ||
| ||||||||
TOTAL LOAN AGREEMENTS (Identified Cost $4,174) |
| 4,096 | ||||||
| ||||||||
SHARES | ||||||||
PREFERRED STOCK—0.6% |
| |||||||
Financials—0.6% | ||||||||
Citigroup, Inc. | 125 | (9) | 125 | |||||
JPMorgan Chase & | 25 | (9) | 25 | |||||
SunTrust Banks, Inc. | 30 | (9) | 30 | |||||
|
| |||||||
|
180
|
| ||||||
| ||||||||
TOTAL PREFERRED STOCK (Identified Cost $181) |
| 180 | ||||||
| ||||||||
AFFILIATED MUTUAL FUNDS—2.3% |
| |||||||
Equity Funds—2.3% |
| |||||||
Virtus Credit | 65,829 | 647 | ||||||
|
| |||||||
| ||||||||
TOTAL AFFILIATED MUTUAL FUNDS |
| |||||||
(Identified Cost $658) | 647 | |||||||
|
CONTRACTS | VALUE | |||||||
PURCHASED OPTIONS—0.0% |
| |||||||
Call Options—0.0% |
| |||||||
S&P 500 Index | 21 | — | (12) | |||||
S&P 500 Index | 22 | $ | 1 | |||||
|
| |||||||
|
1 |
| ||||||
|
| |||||||
Put Options—0.0% |
| |||||||
S&P 500 Index | 21 | 1 | ||||||
S&P 500 Index | 22 | 3 | ||||||
|
| |||||||
|
4
|
| ||||||
| ||||||||
TOTAL PURCHASED OPTIONS (Identified Cost $6) |
| 5 | ||||||
| ||||||||
TOTAL LONG TERM INVESTMENTS — 98.5% |
| |||||||
(Identified Cost $28,795) | $28,272 | |||||||
| ||||||||
SHARES | ||||||||
SHORT-TERM INVESTMENTS—2.5% |
| |||||||
Money Market Mutual Funds—2.5% |
| |||||||
BlackRock Liquidity
|
| 724,134
|
|
| 724
|
| ||
| ||||||||
TOTAL SHORT-TERM INVESTMENTS |
| |||||||
(Identified Cost $724) | 724 | |||||||
| ||||||||
TOTAL INVESTMENTS, BEFORE WRITTEN |
| |||||||
(Identified Cost $29,519) | 28,996 | (1) | ||||||
| ||||||||
CONTRACTS | ||||||||
WRITTEN OPTIONS—(0.1)% |
| |||||||
Call Options—0.0% |
| |||||||
S&P 500 Index | (21 | ) | — | (12) | ||||
CONTRACTS | VALUE | |||||||
Call Options—continued |
| |||||||
S&P 500 Index | (22 | ) | (1) | |||||
|
| |||||||
|
(1) |
| ||||||
|
| |||||||
Put Options—(0.1)% |
| |||||||
S&P 500 Index Expiring 11/06/15 Strike Price $2,000(11) | (21 | ) | (4) | |||||
S&P 500 Index Expiring 11/13/15 Strike Price $2,005(11) | (22 | ) | $(10) | |||||
|
| |||||||
|
(14)
|
| ||||||
| ||||||||
TOTAL WRITTEN OPTIONS (Proceeds $(19)) |
| (15) | (1) | |||||
| ||||||||
TOTAL INVESTMENTS NET OF |
| |||||||
(Identified Cost $29,500) |
| $28,981 | ||||||
Other assets and liabilities, |
| (262 | ) | |||||
|
| |||||||
NET ASSETS — 100.0% |
| $28,719 | ||||||
|
|
Footnote Legend:
(1) | Federal Income Tax Information: For tax information at October 31, 2015, 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 October 31, 2015, these securities amounted to a value of $11,957 or 41.6% of net assets. |
(3) | Variable or step coupon security; interest rate shown reflects the rate in effect at October 31, 2015. |
(4) | All or a portion segregated as collateral for written options and over-the-counter credit default swaps. |
(5) | This note was issued for the sole purpose of funding a loan agreement between the issuer and the borrower. As the credit risk for this security lies solely with the borrower, the name represented here is that of the borrower. |
(6) | 100% of the income received was in cash . |
(7) | Security in default, interest payments are being received during the bankruptcy proceedings. |
(8) | This loan will settle after October 31, 2015, at which time the interest rate, based on the London Interbank Offered Rate (“LIBOR”) and the agreed upon spread on trade date, will be known. |
(9) | Amount shown is par value. |
(10) | This fund is a public fund and the prospectus |
See Notes to Financial Statements.
83
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ reported in thousands)
is on www.virtus.com. | ||||
(11) Strike price not reported in thousands. | ||||
(12) Amount is less than $500. | ||||
Abbreviations: | ||||
LLC | Limited Liability Company | |||
LP | Limited Partnership | |||
PIK | Payment in Kind | |||
PLC | Public Limited Company | |||
REIT | Real Estate Investment Trusts | |||
S&P | Standard & Poor’s | |||
Foreign Currencies: | ||||
BRL | Brazilian Real | |||
KRW | South Korean Won |
TWD | Taiwan New Dollar |
Country Weightings (Unaudited)† | ||||
United States | 85 | % | ||
Luxembourg | 2 | |||
Canada | 2 | |||
Mexico | 2 | |||
Sweden | 2 | |||
Cayman Islands | 1 | |||
Other | 6 | |||
Total | 100 | % | ||
†% of total investments, net of written options, as of October 31, 2015 |
|
Forward foreign currency exchange contracts as of October 31, 2015 were as follows: | ||||||||||||||||||
Currency Purchased | Value | Currency Sold | Value | Counterparty | Settlement Date |
Unrealized Appreciation | ||||||||||||
BRL | 751 | USD | 190 | JPMorgan Chase Bank N.A. | 2/10/16 | $ (2) | ||||||||||||
USD | 200 | BRL | 751 | JPMorgan Chase Bank N.A. | 2/10/16 | 12 | ||||||||||||
USD | 100 | TWD | 3,248 | JPMorgan Chase Bank N.A. | 2/16/16 | — (a) | ||||||||||||
USD | 100 | KRW | 118,325 | JPMorgan Chase Bank N.A. | 2/17/16 | (4) | ||||||||||||
Total | $ 6 |
Centrally cleared credit default swap- buy protection(1) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Receive Rate | Expiration Date | Notional Amount(2) | Value | Premiums Paid (Received) | Unrealized Appreciation (Depreciation) | |||||||||||||||||
CDX North America High-Yield Index | JPMorgan Chase Bank N.A. | 5% | 6/20/20 | 1,400 | USD | $(89 | ) | $(46) | $(43) | |||||||||||||||
| ||||||||||||||||||||||||
Total | $(89 | ) | $(46) | $(43) | ||||||||||||||||||||
|
|
|
|
|
|
Over-the-counter credit default swap- sell protection(3) outstanding as of October 31, 2015 was as follows:
Reference Entity | Counterparty | Fixed Receive Rate | Expiration Date | Notional Amount(2) | Value | Premiums Paid | Unrealized Appreciation (Depreciation) | |||||||||||||||||
iHeartCommunications, Inc. | JPMorgan Chase Bank N.A. | 5% | 12/20/16 | 100 | USD | $(18 | ) | $(5) | $(13) | |||||||||||||||
| ||||||||||||||||||||||||
Total | $(18 | ) | $(5) | $(13) | ||||||||||||||||||||
|
|
|
|
|
|
(1) If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i)receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying investments comprising the referenced index or (ii)receive a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
(2) The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
(3) If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying investments comprising the referenced index or (ii) pay a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
See Notes to Financial Statements.
84
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Continued)
OCTOBER 31, 2015
($ reported in thousands)
The table that follows shows the undiscounted maximum potential payment by the Fund related to selling credit protection in credit default swaps:
Type of Reference Asset of which the Fund Sold Protection | Total Maximum Potential Payments for Selling Credit Protection | Amount Recoverable* | Reference Rating Range** | |||||||||||||
iHeartCommunications, Inc. | $100 | $ — | CCC+ |
*The Fund has no amounts recoverable from related purchased protection. In addition, the Fund has no recourse provisions under the credit derivatives and holds collateral which can offset or reduce potential payments under a triggering event.
**The period end reference asset security ratings, as rated by any rating organization, are included in the equivalent Standard & Poor’s rating category. The reference asset rating represents the likelihood of a potential credit event on the reference asset which would result in a related payment by the Fund.
The following table provides a summary of inputs used to value the Fund’s investments as of October 31, 2015 (See Security Valuation Note 2B in the Notes to Financial Statements):
Total Value at October 31, 2015 | Level 1 Quoted Prices | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Assets: | ||||||||||||||||
Debt Securities: | ||||||||||||||||
U.S. Government Securities | $ 200 | $ — | $ 200 | $ — | ||||||||||||
Foreign Government Securities | 314 | — | 314 | — | ||||||||||||
Municipal Bonds | 170 | — | 170 | — | ||||||||||||
Mortgaged-Backed Securities | 3,273 | — | 3,273 | — | ||||||||||||
Asset-Backed Securities | 1,457 | — | 1,457 | — | ||||||||||||
Corporate Bonds | 17,930 | — | 17,930 | — | ||||||||||||
Loan Agreements | 4,096 | — | 4,001 | 95 | ||||||||||||
Equity Securities: | ||||||||||||||||
Preferred Stock | 180 | — | 180 | — | ||||||||||||
Affiliated Mutual Funds | 647 | 647 | — | — | ||||||||||||
Purchased Options | 5 | 5 | — | — | ||||||||||||
Short-Term Investments | 724 | 724 | — | — | ||||||||||||
Foreign currency exchange contracts | 12 | — | 12 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 29,008 | 1,376 | 27,537 | 95 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Written Options | (15) | (15) | — | — | ||||||||||||
Foreign currency exchange contracts | (6) | — | (6) | — | ||||||||||||
Over-the-Counter Credit Default Swaps | (18) | — | (18) | — | ||||||||||||
Exchange Traded Credit Default Swaps | (89) | — | (89) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | $ (128) | $ (15) | $ (113) | $ — | ||||||||||||
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
85
Table of Contents
VIRTUS STRATEGIC INCOME FUND
SCHEDULE OF INVESTMENTS (Concluded)
OCTOBER 31, 2015
($ reported in thousands)
The following is a reconciliation of assets of the Fund for Level 3 investments which significant unobservable inputs were used to determine fair value.
Loan Agreements | |||||
Investments in Securities | |||||
Balance as of October 31, 2014 | $ | — | |||
Accrued discount/(premium) | — | ||||
Realized gain (loss) | — | ||||
Change in unrealized appreciation (depreciation) | — | ||||
Purchases | — | ||||
Sales | — | ||||
Transfers into Level 3(a) | 95(b) | ||||
Transfers from Level 3(a) | — | ||||
Paydowns | — | ||||
|
| ||||
Balance as of October 31, 2015 | $ | 95 (c) | |||
|
|
Footnote Legend:
(a) | “Transfers into and/or from” represent the ending value as of October 31, 2015, for any investment security where a change in the pricing level occurred from the beginning to the end of the period. |
(b) | The transfer is due to an increase and/or decrease in trading activity at period end. |
(c) | The Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of such Level 3 investments. |
None of the securities in this table are internally fair valued.
See Notes to Financial Statements.
86
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2015
(Reported in thousands except shares and per share amounts)
Virtus Alternative Income Solution Fund | Virtus Alternative Inflation Solution Fund | Virtus Alternative Total Solution Fund(1) | ||||||||||
Assets | ||||||||||||
Investment in securities at value(2) | $ | 38,406 | $ | 30,107 | $ | 91,865 | ||||||
Foreign currency at value(3) | — | (a) | — | (a) | 60 | |||||||
Cash | 10 | 7 | 13 | |||||||||
Cash pledged for futures contracts | 40 | 453 | 438 | |||||||||
Cash pledged as collateral for swaps | 110 | — | 1,780 | |||||||||
Cash pledged as collateral for securities sold short and options | 46 | 52 | 331 | |||||||||
Deposits with prime broker | 921 | 854 | 10,413 | |||||||||
Variation margin receivable on futures contracts | — | — | 5 | |||||||||
Swaps at value(7) | 18 | — | 21 | |||||||||
Unrealized appreciation on forward foreign currency exchange contracts | 12 | — | 90 | |||||||||
Receivables | ||||||||||||
Investment securities sold | 88 | 93 | 3,850 | |||||||||
Fund shares sold | — | — | 498 | |||||||||
Dividends and interest receivable | 473 | 140 | 610 | |||||||||
From adviser | — | 2 | — | |||||||||
Tax Reclaims | 3 | 2 | 1 | |||||||||
Prepaid expenses | 27 | 25 | 44 | |||||||||
|
|
|
|
|
| |||||||
Total assets | 40,154 | 31,735 | 110,019 | |||||||||
|
|
|
|
|
| |||||||
Liabilities | ||||||||||||
Borrowings (Note 9) | — | — | 3,079 | |||||||||
Written options at value(4) | — | — | 19 | |||||||||
Securities sold short at value(5) | 853 | 763 | 9,264 | |||||||||
Dividends payable for securities sold short | — | — | 5 | |||||||||
Variation margin payable on futures contracts | — | 21 | 25 | |||||||||
Swaps at value(6) | 7 | 4 | 25 | |||||||||
Unrealized depreciation on forward foreign currency exchange contracts | 3 | — | 198 | |||||||||
Payables | ||||||||||||
Fund shares repurchased | — | — | 162 | |||||||||
Investment securities purchased | 188 | 147 | 2,604 | |||||||||
Swap reset payable | — | — | 45 | |||||||||
Investment advisory fee | 13 | — | 108 | |||||||||
Distribution and service fees | — | (a) | — | (a) | 5 | |||||||
Administration and sub-administration fees | 34 | 33 | 45 | |||||||||
Transfer agent fees and expenses | 2 | 1 | 7 | |||||||||
Trustees’ fees and expenses | 2 | 1 | 4 | |||||||||
Brokerage clearing fees | 4 | 4 | 11 | |||||||||
Printing fees | 4 | 3 | 9 | |||||||||
Professional fees | 77 | 76 | 98 | |||||||||
Other accrued expenses | 13 | 12 | 33 | |||||||||
|
|
|
|
|
| |||||||
Total liabilities | 1,200 | 1,065 | 15,746 | |||||||||
|
|
|
|
|
| |||||||
Net Assets | $ | 38,954 | $ | 30,670 | $ | 94,273 | ||||||
|
|
|
|
|
| |||||||
Net Assets Consist of: | ||||||||||||
Capital paid in on shares of beneficial interest | $ | 43,727 | $ | 32,979 | $ | 97,964 | ||||||
Accumulated undistributed net investment income (loss) | 292 | 137 | 1,770 | |||||||||
Accumulated undistributed net realized gain (loss) | (541) | (759) | (696) | |||||||||
Net unrealized appreciation (depreciation) on investments | (4,524) | (1,687) | (4,765) | |||||||||
|
|
|
|
|
| |||||||
Net Assets | $ | 38,954 | $ | 30,670 | $ | 94,273 | ||||||
|
|
|
|
|
|
See Notes to Financial Statements
87
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
October 31, 2015
(Reported in thousands except shares and per share amounts)
Virtus Alternative Income Solution Fund | Virtus Alternative Inflation Solution Fund | Virtus Alternative Total Solution Fund(1) | ||||||||||
Class A | ||||||||||||
Net asset value (net assets/shares outstanding) per share* | $8.91 | $9.29 | $9.69 | |||||||||
Maximum offering price per share NAV/(1-5.75%) | $9.45 | $9.86 | $10.28 | |||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 86,569 | 75,294 | 1,316,591 | |||||||||
Net Assets | $ | 772 | $ | 700 | $ | 12,759 | ||||||
Class C | ||||||||||||
Net asset value (net assets/shares outstanding) and offering price per share* | $8.89 | $9.20 | $9.60 | |||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 64,881 | 17,801 | 324,374 | |||||||||
Net Assets | $ | 577 | $ | 164 | $ | 3,113 | ||||||
Class I | ||||||||||||
Net asset value (net assets/shares outstanding), offering price and redemption per share | $8.92 | $9.32 | $9.73 | |||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 4,218,351 | 3,199,852 | 8,049,747 | |||||||||
Net Assets | $ | 37,605 | $ | 29,806 | $ | 78,303 | ||||||
Class R6 | ||||||||||||
Net asset value (net assets/shares outstanding), offering price and redemption per share | $ | — | $ | — | $ | 9.73 | ||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | — | — | 10,026 | |||||||||
Net Assets | $ | — | $ | — | $ | 98 | ||||||
(1) Consolidated Statement of Assets and Liabilities | ||||||||||||
(2) Investment in unaffiliated securities at cost | $ | 42,940 | $ | 31,816 | $ | 96,342 | ||||||
(3) Foreign currency at cost | — | (a) | — | (a) | 61 | |||||||
(4) Proceeds from written options | — | — | (17) | |||||||||
(5) Proceeds from securities sold short | (875) | (781) | (9,289) | |||||||||
(6) Includes premiums received on over-the-counter swaps | (6) | — | (7) | |||||||||
(7) Includes premiums paid on over-the-counter swaps | 31 | — | 35 |
*Redemption price per share is equal to the Net Asset Value per share, less any applicable contingent deferred sales charges.
Footnote Legend:
(a)Amount is less than $500.
See Notes to Financial Statements
88
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
October 31, 2015
(Reported in thousands except shares and per share amounts)
Virtus Credit Opportunities Fund | Virtus Multi-Strategy Target Return Fund | Virtus Select MLP and Energy Fund | Virtus Strategic Income Fund | |||||||||||||
Assets | ||||||||||||||||
Investment in securities at value(2) | $ | 94,398 | $ | 52,936 | $ | 4,904 | $ | 28,349 | ||||||||
Investment in affiliated funds at value(2) | — | — | — | 647 | ||||||||||||
Foreign currency at value(3) | — | 1,203 | — | — | ||||||||||||
Cash | 94 | — | — | 13 | ||||||||||||
Cash pledged for futures contracts | — | 556 | — | — | ||||||||||||
Cash pledged as collateral for swaps | 100 | — | — | 1 | ||||||||||||
Cash pledged as collateral for securities sold short and options | — | — | — | 68 | ||||||||||||
Deposits with prime broker | — | — | — | 290 | ||||||||||||
Variation margin receivable on swaps | — | 285 | — | 139 | ||||||||||||
Variation margin receivable on futures contracts | — | 28 | — | — | ||||||||||||
Swaps at value(6) | 512 | 844 | — | — | ||||||||||||
Unrealized appreciation on forward foreign currency exchange contracts | 16 | 210 | — | 12 | ||||||||||||
Receivables | ||||||||||||||||
Investment securities sold | 14 | — | — | 517 | ||||||||||||
Fund shares sold | — | 106 | — | 14 | ||||||||||||
Dividends and interest receivable | 543 | 55 | 27 | 324 | ||||||||||||
From adviser | — | 45 | 31 | 9 | ||||||||||||
Prepaid expenses | 22 | 10 | 3 | 32 | ||||||||||||
Trade claim receivable | 800 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | 96,499 | 56,278 | 4,965 | 30,415 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Written options at value(4) | — | 530 | — | 15 | ||||||||||||
Variation margin payable on futures contracts | — | 12 | — | — | ||||||||||||
Swaps at value (5),(7) | — | 592 | — | 107 | ||||||||||||
Unrealized depreciation on forward foreign currency exchange contracts | 54 | 216 | — | 6 | ||||||||||||
Payables | ||||||||||||||||
Fund shares repurchased | — | — | — | 14 | ||||||||||||
Investment securities purchased | — | 167 | 23 | 1,482 | ||||||||||||
Investment advisory fee | 21 | — | — | — | ||||||||||||
Distribution and service fees | — | (a) | 1 | — | (a) | 1 | ||||||||||
Administration and sub-administration fees | 14 | 8 | 2 | 12 | ||||||||||||
Transfer agent fees and expenses | 3 | 2 | — | (a) | — | |||||||||||
Trustees’ fees and expenses | 5 | 2 | — | (a) | 1 | |||||||||||
Brokerage clearing fees | 11 | 6 | — | 4 | ||||||||||||
Printing fees | 9 | 5 | 16 | 3 | ||||||||||||
Professional fees | 27 | 93 | 23 | 48 | ||||||||||||
Other accrued expenses | 4 | 8 | 2 | 3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 148 | 1,642 | 66 | 1,696 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets | $ | 96,351 | $ | 54,636 | $ | 4,899 | $ | 28,719 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets Consist of: | ||||||||||||||||
Capital paid in on shares of beneficial interest | $ | 98,022 | $ | 54,418 | $ | 5,004 | $ | 29,390 | ||||||||
Accumulated undistributed net investment income (loss) | 219 | (32) | 8 | 70 | ||||||||||||
Accumulated undistributed net realized gain (loss) | (466) | (157) | — | (172) | ||||||||||||
Net unrealized appreciation (depreciation) on investments | (1,424) | 407 | (113) | (569) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Assets | $ | 96,351 | $ | 54,636 | $ | 4,899 | $ | 28,719 | ||||||||
|
|
|
|
|
|
|
|
See Notes to Financial Statements
89
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
October 31, 2015
(Reported in thousands except shares and per share amounts)
Virtus Credit Opportunities Fund | Virtus Multi-Strategy Target Return Fund | Virtus Select MLP and Energy Fund | Virtus Strategic Income Fund | |||||||||||||
Class A | ||||||||||||||||
Net asset value (net assets/shares outstanding) per share* | $9.83 | $10.02 | $9.79 | $9.75 | ||||||||||||
Maximum offering price per share NAV/(1-5.75%) (NAV/(1-3.75%) for Strategic Income) | $10.43 | $10.63 | $10.39 | $10.13 | ||||||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 10,042 | 86,113 | 10,381 | 193,378 | ||||||||||||
Net Assets | $ | 99 | $ | 863 | $ | 102 | $ | 1,886 | ||||||||
Class C | ||||||||||||||||
Net asset value (net assets/shares outstanding) and offering price per share* | $9.82 | $10.00 | $9.78 | $9.75 | ||||||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 10,018 | 44,747 | 10,000 | 34,606 | ||||||||||||
Net Assets | $ | 98 | $ | 448 | $ | 98 | $ | 337 | ||||||||
Class I | ||||||||||||||||
Net asset value (net assets/shares outstanding), offering price and redemption per share | $9.83 | $10.03 | $9.79 | $9.75 | ||||||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 15,142 | 5,316,037 | 480,000 | 2,717,333 | ||||||||||||
Net Assets | $ | 149 | $ | 53,325 | $ | 4,699 | $ | 26,496 | ||||||||
Class R6 | ||||||||||||||||
Net asset value (net assets/shares outstanding), offering price and redemption per share | $9.83 | $ | — | $ | — | $ | — | |||||||||
Shares of beneficial interest outstanding, no par value, unlimited authorization | 9,766,608 | — | — | — | ||||||||||||
Net Assets | $ | 96,005 | $ | — | $ | — | $ | — | ||||||||
(1) Consolidated Statement of Assets and Liabilities | ||||||||||||||||
(2) Investment in unaffiliated securities at cost | $ | 95,788 | $ | 53,110 | $ | 5,017 | $ | 28,861 | ||||||||
(2) Investment in affiliated funds at cost | — | — | — | 658 | ||||||||||||
(3) Foreign currency at cost | — | 1,199 | — | — | ||||||||||||
(4) Proceeds from written options | — | (625) | — | (19) | ||||||||||||
(5) Includes premiums received on over-the-counter swaps | — | — | — | (5) | ||||||||||||
(6) Includes premiums paid on over-the-counter swaps | 508 | — | — | — | ||||||||||||
(7) Includes premiums received on centrally cleared credit default swaps | — | — | — | (46) |
* Redemption price per share is equal to the Net Asset Value per share, less any applicable contingent deferred sales charges.
Footnote Legend:
(a) | Amount is less than $500. |
See Notes to Financial Statements
90
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED OCTOBER 31, 2015
($ reported in thousands)
Virtus Alternative Income Solution Fund | Virtus Alternative Inflation Solution Fund | Virtus Alternative Total Solution Fund (1) | ||||||||||
Investment Income | ||||||||||||
Dividends | $ 414 | $ 382 | $ 611 | |||||||||
Interest | 2,155 | 547 | 2,161 | |||||||||
Foreign taxes withheld | (22) | (19) | (17) | |||||||||
|
|
|
|
|
| |||||||
Total investment income | 2,547 | 910 | 2,755 | |||||||||
|
|
|
|
|
| |||||||
Expenses | ||||||||||||
Investment advisory fees | 743 | 563 | 1,731 | |||||||||
Distribution and service fees, Class A | 2 | 2 | 29 | |||||||||
Distribution and service fees, Class C | 6 | 2 | 24 | |||||||||
Administration fees | 41 | 32 | 86 | �� | ||||||||
Sub-administration Fees | 212 | 212 | 287 | |||||||||
Transfer agent fees and expenses | 20 | 15 | 60 | |||||||||
Registration fees | 55 | 55 | 68 | |||||||||
Printing fees and expenses | 35 | 27 | 67 | |||||||||
Custodian fees | 46 | 28 | 89 | |||||||||
Professional fees | 104 | 119 | 162 | |||||||||
Trustees’ fees and expenses | 57 | 45 | 107 | |||||||||
Offering expenses | 4 | 4 | 4 | |||||||||
Miscellaneous expenses | 52 | 38 | 88 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 1,377 | 1,142 | 2,802 | |||||||||
|
|
|
|
|
| |||||||
Dividend expense on securities sold short | 58 | 67 | 229 | |||||||||
Interest expense on securities sold short and borrowings | 1 | — | 22 | |||||||||
|
|
|
|
|
| |||||||
Total expenses, including dividend expense on securities sold short, and interest expense on securities sold short and borrowings | 1,436 | 1,209 | 3,053 | |||||||||
|
|
|
|
|
| |||||||
Less expenses reimbursed and/or waived by investment adviser | (423) | (406) | (637) | |||||||||
Less expenses waived by sub-administrator | (39) | (41) | (31) | |||||||||
|
|
|
|
|
| |||||||
Net expenses | 974 | 762 | 2,385 | |||||||||
|
|
|
|
|
| |||||||
Net investment income (loss) | 1,573 | 148 | 370 | |||||||||
|
|
|
|
|
| |||||||
Net Realized and Unrealized Gain (Loss) on Investments | ||||||||||||
Net realized gain (loss) on investments | (529) | (293) | (442) | |||||||||
Net realized gain (loss) on foreign currency transactions | 147 | 13 | 552 | |||||||||
Net realized gain (loss) on futures | (73) | (249) | 715 | |||||||||
Net realized gain (loss) on written options | — | — | 170 | |||||||||
Net realized gain (loss) on swaps | 10 | 7 | 462 | |||||||||
Net change in unrealized appreciation (depreciation) on investments | (4,438) | (2,376) | (4,936) | |||||||||
Net change in unrealized appreciation (depreciation) on securities sold short | 109 | 111 | 293 | |||||||||
Net change in unrealized appreciation (depreciation) on foreign currency transactions | (19) | (5) | (235) | |||||||||
Net change in unrealized appreciation (depreciation) on futures | 19 | 73 | (146) | |||||||||
Net change in unrealized appreciation (depreciation) on written options | — | — | (2) | |||||||||
Net change in unrealized appreciation (depreciation) on swaps | (14) | (4) | (29) | |||||||||
|
|
|
|
|
| |||||||
Net gain (loss) on investments | (4,788) | (2,723) | (3,598) | |||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets resulting from operations | $ (3,215) | $ (2,575) | $ (3,228) | |||||||||
|
|
|
|
|
|
Footnote Legend:
(1) Consolidated Statement of Operations
See Notes to Financial Statements
91
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF OPERATIONS (Continued)
YEAR OR PERIOD ENDED OCTOBER 31, 2015
($ reported in thousands)
Virtus Credit Opportunities Fund(1) | Virtus Multi- Strategy Target Return Fund(2) | Virtus Select MLP and Energy Fund(3) | Virtus Strategic Income Fund | |||||||||||||
Investment Income | ||||||||||||||||
Dividends | $ 23 | $ 14 | $ 29 | $ 1 | ||||||||||||
Less return of capital distributions (Note 2D) | — | — | (12) | — | ||||||||||||
Dividend income from affiliated funds | — | — | — | 3 | ||||||||||||
Interest | 1,109 | 43 | — | 1,399 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total investment income | 1,132 | 57 | 17 | 1,403 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Expenses | ||||||||||||||||
Investment advisory fees | 288 | 186 | 7 | 211 | ||||||||||||
Distribution and service fees, Class A | — | (4) | — | (4) | — | (4) | 2 | |||||||||
Distribution and service fees, Class C | — | (4) | 1 | — | (4) | 2 | ||||||||||
Administration fees | 38 | 14 | 1 | 26 | ||||||||||||
Sub-administration Fees | 37 | 27 | 13 | 88 | ||||||||||||
Transfer agent fees and expenses | 17 | 6 | 1 | 12 | ||||||||||||
Registration fees | 20 | 14 | 4 | 64 | ||||||||||||
Printing fees and expenses | 43 | 18 | 15 | 23 | ||||||||||||
Custodian fees | 2 | 2 | — | (4) | 7 | |||||||||||
Professional fees | 56 | 175 | 27 | 66 | ||||||||||||
Trustees’ fees and expenses | 43 | 7 | 1 | 40 | ||||||||||||
Miscellaneous expenses | 43 | 15 | 2 | 34 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total expenses | 587 | 465 | 71 | 575 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Less expenses reimbursed and/or waived by investment adviser | (175) | (228) | (52) | (215) | ||||||||||||
Less expenses waived by sub-administrator | (12) | (14) | (10) | (54) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net expenses | 400 | 223 | 9 | 306 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net investment income (loss) | 732 | (166) | 8 | 1,097 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Realized and Unrealized Gain (Loss) on Investments | ||||||||||||||||
Net realized gain (loss) on investments | (472) | 133 | — | (1,735) | ||||||||||||
Net realized gain (loss) on foreign currency transactions | (13) | (28) | — | 11 | ||||||||||||
Net realized gain (loss) on futures | — | (214) | — | — | ||||||||||||
Net realized gain (loss) on written options | — | 31 | — | 1,678 | ||||||||||||
Net realized gain (loss) on swaps | (13) | 55 | — | 32 | ||||||||||||
Net change in unrealized appreciation (depreciation) on investments | (1,390) | (174) | (113) | (458) | ||||||||||||
Net change in unrealized appreciation (depreciation) on foreign currency transactions | (38) | (2) | — | 6 | ||||||||||||
Net change in unrealized appreciation (depreciation) on futures | — | 236 | — | — | ||||||||||||
Net change in unrealized appreciation (depreciation) on written options | — | 95 | — | (12) | ||||||||||||
Net change in unrealized appreciation (depreciation) on swaps | 4 | 252 | — | (87) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net gain (loss) on investments | (1,922) | 384 | (113) | (565) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | $ (1,190) | $ 218 | $ (105) | $ 532 | ||||||||||||
|
|
|
|
|
|
|
|
Footnote Legend:
(1) | From inception date June 5, 2015 |
(2) | From inception date July 20, 2015 |
(3) | From inception date September 9, 2015 |
(4) | Amount is less than $500. |
See Notes to Financial Statements
92
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in thousands)
Virtus Alternative Income Solution Fund | Virtus Alternative Inflation Solution Fund | |||||||||||||||
Year Ended October 31, 2015 | From Inception April 23, 2014 to October 31, 2014 | Year Ended October 31, 2015 | From Inception April 23, 2014 to October 31, 2014 | |||||||||||||
INCREASE/(DECREASE) IN NET ASSETS | ||||||||||||||||
From Operations | ||||||||||||||||
Net investment income (loss) | $1,573 | $604 | $148 | $50 | ||||||||||||
Net realized gain (loss) | (445) | 316 | (522) | (172) | ||||||||||||
Net change in unrealized appreciation (depreciation) | (4,343) | (181) | (2,201) | 514 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets resulting from operations | (3,215) | 739 | (2,575) | 392 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
From Distributions to Shareholders | ||||||||||||||||
Net investment income, Class A | (23) | (7) | (1) | — | ||||||||||||
Net investment income, Class C | (14) | (3) | — | — | ||||||||||||
Net investment income, Class I | (1,259) | (592) | (87) | — | ||||||||||||
Net realized short-term gains, Class A | (5) | (1) | — | — | ||||||||||||
Net realized short-term gains, Class C | (4) | — | (1) | — | — | |||||||||||
Net realized short-term gains, Class I | (256) | (62) | — | — | ||||||||||||
Net realized long-term gains, Class A | — | (1) | — | — | — | |||||||||||
Net realized long-term gains, Class C | — | (1) | — | — | — | |||||||||||
Net realized long-term gains, Class I | (16) | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Decrease in net assets from distributions to shareholders | (1,577) | (665) | (88) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
From Share Transactions (See Note 6) | ||||||||||||||||
Change in net assets from share transactions, Class A | 125 | 759 | 261 | 503 | ||||||||||||
Change in net assets from share transactions, Class C | 260 | 392 | 27 | 151 | ||||||||||||
Change in net assets from share transactions, Class I | 781 | 41,355 | 100 | 31,899 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets from share transactions | 1,166 | 42,506 | 388 | 32,553 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets | (3,626) | 42,580 | (2,275) | 32,945 | ||||||||||||
Net Assets | ||||||||||||||||
Beginning of period | 42,580 | — | 32,945 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $38,954 | $42,580 | $30,670 | $32,945 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated undistributed net investment income (loss) at end of period | $292 | $(8) | $137 | $50 |
Footnote Legend:
Footnote Legend:
(1) | Amount is less than $500. |
See Notes to Financial Statements
93
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
($ reported in thousands)
Virtus Alternative Total Solution Fund(1) | Virtus Credit Opportunities Fund | Virtus Multi- Strategy Target Return Fund | ||||||||||||||
Year Ended October 31, 2015 | From Inception April 23, 2014 to October 31, 2014 | From Inception June 5, 2015 to October 31, 2015 | From Inception July 20, 2015 to October 31, 2015 | |||||||||||||
INCREASE/(DECREASE) IN NET ASSETS | ||||||||||||||||
From Operations | ||||||||||||||||
Net investment income (loss) | $370 | $(17) | $732 | $(166) | ||||||||||||
Net realized gain (loss) | 1,457 | 450 | (498) | (23) | ||||||||||||
Net change in unrealized appreciation (depreciation) | (5,055) | 559 | (1,424) | 407 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets resulting from operations | (3,228) | 992 | (1,190) | 218 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
From Distributions to Shareholders | ||||||||||||||||
Net investment income, Class A | (19) | — | — | (2) | — | |||||||||||
Net investment income, Class C | (2) | — | — | (2) | — | |||||||||||
Net investment income, Class I | (155) | — | (1) | — | ||||||||||||
Net investment income, Class R6 | — | (2) | — | (480) | — | |||||||||||
Net realized short-term gains, Class A | (122) | — | — | — | ||||||||||||
Net realized short-term gains, Class C | (22) | — | — | — | ||||||||||||
Net realized short-term gains, Class I | (837) | — | — | — | ||||||||||||
Net realized short-term gains, Class R6 | (1) | — | — | — | ||||||||||||
Net realized long-term gains, Class A | (4) | — | — | — | ||||||||||||
Net realized long-term gains, Class C | (1) | — | — | — | ||||||||||||
Net realized long-term gains, Class I | (25) | — | — | — | ||||||||||||
Net realized long-term gains, Class R6 | — | (2) | — | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Decrease in net assets from distributions to shareholders | (1,188) | — | (481) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
From Share Transactions (See Note 6) | ||||||||||||||||
Change in net assets from share transactions, Class A | 6,225 | 7,142 | 101 | 854 | ||||||||||||
Change in net assets from share transactions, Class C | 1,937 | 1,328 | 100 | 444 | ||||||||||||
Change in net assets from share transactions, Class I | 18,064 | 62,899 | 151 | 53,120 | ||||||||||||
Change in net assets from share transactions, Class R6 | 102 | — | 97,670 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets from share transactions | 26,328 | 71,369 | 98,022 | 54,418 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets | 21,912 | 72,361 | 96,351 | 54,636 | ||||||||||||
Net Assets | ||||||||||||||||
Beginning of period | 72,361 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $94,273 | $72,361 | $96,351 | $54,636 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Accumulated undistributed net investment income (loss) at end of period | $1,770 | $159 | $219 | $(32) |
Footnote Legend:
Footnote Legend:
(1) | Consolidated Statement of Changes in Net Assets. |
(2) | Amount is less than $500. |
See Notes to Financial Statements
94
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
($ reported in thousands)
Virtus Select MLP and Energy Fund | Virtus Strategic Income Fund | |||||||||||
From Inception September 9, 2015 to October 31, 2015 | Year Ended October 31, 2015 | From Inception September 8, 2014 to October 31, 2014 | ||||||||||
INCREASE/(DECREASE) IN NET ASSETS | ||||||||||||
From Operations | ||||||||||||
Net investment income (loss) | $8 | $1,097 | $74 | |||||||||
Net realized gain (loss) | — | (14) | (139) | |||||||||
Net change in unrealized appreciation (depreciation) | (113) | (551) | (18) | |||||||||
|
|
|
|
|
| |||||||
Increase (decrease) in net assets resulting from operations | (105) | 532 | (83) | |||||||||
|
|
|
|
|
| |||||||
From Distributions to Shareholders | ||||||||||||
Net investment income, Class A | — | (28) | — | (1) | ||||||||
Net investment income, Class C | — | (7) | — | (1) | ||||||||
Net investment income, Class I | — | (1,036) | (49) | |||||||||
|
|
|
|
|
| |||||||
Decrease in net assets from distributions to shareholders | — | (1,071) | (49) | |||||||||
|
|
|
|
|
| |||||||
From Share Transactions (See Note 6) | ||||||||||||
Change in net assets from share transactions, Class A | 104 | 1,772 | 120 | |||||||||
Change in net assets from share transactions, Class C | 100 | 248 | 100 | |||||||||
Change in net assets from share transactions, Class I | 4,800 | 2,298 | 24,852 | |||||||||
|
|
|
|
|
| |||||||
Increase (decrease) in net assets from share transactions | 5,004 | 4,318 | 25,072 | |||||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in net assets | 4,899 | 3,779 | 24,940 | |||||||||
Net Assets | ||||||||||||
Beginning of period | — | 24,940 | — | |||||||||
|
|
|
|
|
| |||||||
End of period | $4,899 | $28,719 | $24,940 | |||||||||
|
|
|
|
|
| |||||||
Accumulated undistributed net investment income (loss) at end of period | $8 | $70 | $27 |
Footnote Legend:
(1) | Amount is less than $500. |
See Notes to Financial Statements
95
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total from Investment Operations | Dividends from Net Investment Income | Distributions Realized | Total Distributions | Change in Net Asset Value | Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in thousands) | Ratio of Net Expenses (including dividend expense on securities sold short, interest expense on securities sold short and borrowings after expense waivers/ reimbursements) to Average Net Assets(3)(4)(5) | Ratio of Total Expenses (including dividend expense on securities sold short, interest expense on securities sold short and borrowings before expense waivers/ reimbursements) to Average Net Assets | Ratio of Net Investment Income (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Alternative Income Solution Fund | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | $ | 10.03 | $0.34 | $ | (1.11 | ) | $ | (0.77 | ) | $ | (0.28) | $ | (0.07) | $ (0.35) | $(1.12) | $ | 8.91 | (7.82 | %) | $772 | 2.59% | 3.72% | 3.58% | 72% | |||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | 0.14 | 0.04 | 0.18 | (0.14) | (0.01) | (0.15) | 0.03 | 10.03 | 1.82 | (7) | 747 | 2.65(8) | 3.76(8) | 2.56(8) | 49(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.01 | 0.27 | (1.11 | ) | (0.84 | ) | (0.21 | ) | (0.07 | ) | (0.28 | ) | (1.12 | ) | 8.89 | (8.48 | ) | 577 | 3.34 | 4.48 | 2.83 | 72 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | 0.10 | 0.04 | 0.14 | (0.12 | ) | (0.01 | ) | (0.13 | ) | 0.01 | 10.01 | 1.38 | (7) | 387 | 3.40(8) | 4.39(8) | 1.81(8) | 49(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.03 | 0.36 | (1.10 | ) | (0.74 | ) | (0.30 | ) | (0.07 | ) | (0.37 | ) | (1.11 | ) | 8.92 | (7.48 | ) | 37,605 | 2.34 | 3.46 | 3.83 | 72 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | 0.15 | 0.04 | 0.19 | (0.14 | ) | (0.02 | ) | (0.16 | ) | 0.03 | 10.03 | 1.90 | (7) | 41,446 | 2.43(8) | 3.70(8) | 2.79(8) | 49(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Alternative Inflation Solution Fund | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | $ | 10.11 | $0.02 | $ | (0.82 | ) | $ | (0.80 | ) | $ | (0.02 | ) | $ — | $ (0.02) | $(0.82) | $ | 9.29 | (7.96 | %) | $700 | 2.60% | 4.01% | 0.23% | 74% | |||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | — (9) | 0.11 | 0.11 | — | — | — | 0.11 | 10.11 | 1.10 | (7) | 500 | 2.69(8) | 4.03(8) | 0.04(8) | 31(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.08 | (0.05 | ) | (0.83 | ) | (0.88 | ) | — | — | — | (0.88 | ) | 9.20 | (8.64 | %) | 164 | 3.36 | 4.76 | (0.53) | 74 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | (0.04 | ) | 0.12 | 0.08 | — | — | — | 0.08 | 10.08 | 0.80 | (7) | 152 | 3.45(8) | 4.88(8) | (0.71)(8) | 31(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.12 | 0.05 | (0.82 | ) | (0.77 | ) | (0.03 | ) | — | (0.03 | ) | (0.80 | ) | 9.32 | (7.65 | %) | 29,806 | 2.36 | 3.75 | 0.47 | 74 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | 0.02 | 0.10 | 0.12 | — | — | — | 0.12 | 10.12 | 1.20 | (7) | 32,293 | 2.46(8) | 3.97(8) | 0.29(8) | 31(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Alternative Total Solution Fund(10) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | $ | 10.17 | $0.02 | $ | (0.34 | ) | $ | (0.32 | ) | $ | (0.02 | ) | $ (0.14) | $ (0.16) | $(0.48) | $ | 9.69 | (3.07 | )% | $12,759 | 2.97% | 3.75% | 0.25% | 369% | |||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | (0.02) | 0.19 | 0.17 | — | — | — | 0.17 | 10.17 | 1.70 | (7) | 7,136 | 3.02(8) | 3.93(8) | (0.30)(8) | 195(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.13 | (0.05 | ) | (0.33 | ) | (0.38 | ) | (0.01 | ) | (0.14 | ) | (0.15 | ) | (0.53 | ) | 9.60 | (3.78 | ) | 3,113 | 3.72 | 4.51 | (0.51) | 369 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | (0.06 | ) | 0.19 | 0.13 | — | — | — | 0.13 | 10.13 | 1.30 | (7) | 1,325 | 3.76(8) | 4.66(8) | (1.04)(8) | 195(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 10.18 | 0.05 | (0.33 | ) | (0.28 | ) | (0.03 | ) | (0.14 | ) | (0.17 | ) | (0.45 | ) | 9.73 | (2.83 | ) | 78,303 | 2.72 | 3.50 | 0.49 | 369 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(6) | 10.00 | — (9) | 0.18 | 0.18 | — | — | — | 0.18 | 10.18 | 1.80 | (7) | 63,900 | 2.75(8) | 3.85(8) | (0.04)(8) | 195(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class R6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(11) | 10.14 | 0.06 | (0.30 | ) | (0.24 | ) | (0.03 | ) | (0.14 | ) | (0.17 | ) | (0.41 | ) | 9.73 | (2.35 | )(7) | 98 | 2.70(8) | 3.50(8) | 0.68(8) | 369(7) |
See Notes to Financial Statements
96
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
Net Asset Period | Net Investment Income (Loss)(1) | Net Realized and Unrealized Gain (Loss) | Total from Investment Operations | Dividends from Net Investment Income | Distributions Realized | Total Distributions | Change in Net Asset Value | Net Asset Value, End of Period | Total Return(2) | Net Assets, End of Period (in thousands) | Ratio of Net Expenses (after expense waivers and reimbursements) to Average Net Assets | Ratio of Total Expenses (before expense waivers and reimbursements) to Average Net Assets | Ratio of Net Investment Income (Loss) to Average Net Assets | Portfolio Turnover Rate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Credit Opportunities Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(12) | $10.00 | $ 0.06 | $ | (0.19) | $ | (0.13 | ) | $ | (0.04) | $ — | $ | (0.04) | $ | (0.17) | $ | 9.83 | (1.29 | )%(7) | $99 | 1.35%(8) | 1.77%(8) | 1.59%(8) | 21%(7) | |||||||||||||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(12) | 10.00 | 0.03 | (0.19 | ) | (0.16 | ) | (0.02 | ) | — | (0.02 | ) | (0.18 | ) | 9.82 | (1.62 | )(7) | 98 | 2.10(8) | 2.52(8) | 0.84(8) | 21(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(12) | 10.00 | 0.07 | (0.19 | ) | (0.12 | ) | (0.05 | ) | — | (0.05 | ) | (0.17 | ) | 9.83 | (1.21 | )(7) | 149 | 1.10(8) | 1.53(8) | 1.84(8) | 21(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Class R6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(12) | 10.00 | 0.08 | (0.20 | ) | (0.12 | ) | (0.05 | ) | — | (0.05 | ) | (0.17 | ) | 9.83 | (1.21 | )(7) | 96,005 | 1.04(8) | 1.52(8) | 1.90(8) | 21(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Multi-Strategy Target Return Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(13) | $10.00 | $ (0.04) | $ | 0.06 | $ | 0.02 | $ — | $ — | $ — | $ 0.02 | $ | 10.02 | 0.20 | %(7) | $863 | 1.80%(8) | 4.07%(8) | (1.40)%(8) | 1%(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(13) | 10.00 | (0.06) | 0.06 | — | — | — | — | — | 10.00 | 0.00 | (7) | 448 | 2.55(8) | 4.63(8) | (2.15)(8) | 1(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(13) | 10.00 | (0.03) | 0.06 | 0.03 | — | — | — | 0.03 | 10.03 | 0.30 | (7) | 53,325 | 1.55(8) | 3.24(8) | (1.15)(8) | 1(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Select MLP and Energy Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(14) | $10.00 | $ 0.01 | $ | (0.22) | $ | (0.21 | ) | $ — | $ — | $ — | $ | (0.21 | ) | $ | 9.79 | (2.10 | )%(7) | $102 | 1.55%(8) | 10.70%(8) | 1.00%(8) | 0%(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(14) | 10.00 | — (9) | (0.22 | ) | (0.22 | ) | — | — | — | (0.22 | ) | 9.78 | (2.20 | )(7) | 98 | 2.30(8) | 11.41(8) | 0.25(8) | 0(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15(14) | 10.00 | 0.02 | (0.23 | ) | (0.21 | ) | — | — | — | (0.21 | ) | 9.79 | (2.10 | )(7) | 4,699 | 1.30(8) | 10.41(8) | 1.25(8) | 0(7) |
See Notes to Financial Statements
97
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
Net
| Net
| Net
| Total from
| Dividends
| Distributions Realized
| Total
| Change
| Net
| Total
| Net
| Ratio of Net reimbursements)
| Ratio of Total
| Ratio of
| Portfolio
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Virtus Strategic Income Fund | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | $ 9.95 | $ | 0.38 | $ | (0.20) | $ | 0.18 | $ | (0.38) | $ | — | $ | (0.38) | $ | (0.20) | $9.75 | 1.91 | % | $ | 1,886 | 1.40% | 2.42% | 3.91% | 97% | ||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(15) | 10.00 | 0.03 | (0.06) | (0.03) | (0.02) | — | (0.02) | (0.05) | 9.95 | (0.33 | )(7) | 119 | 1.40(8) | 3.71(8) | 1.84(8) | 83(7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 9.95 | 0.31 | (0.21) | 0.10 | (0.30) | — | (0.30 | ) | (0.20) | 9.75 | 1.06 | 337 | 2.14 | 3.15 | 3.17 | 97 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(15) | 10.00 | 0.02 | (0.06) | (0.04) | (0.01) | — | (0.01 | ) | (0.05) | 9.95 | (0.43 | )(7) | 100 | 2.15(8) | 4.85(8) | 1.09(8) | 83(7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Class I | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/15 | 9.95 | 0.41 | (0.21) | 0.20 | (0.40) | — | (0.40 | ) | (0.20) | 9.75 | 2.07 | 26,496 | 1.14 | 2.16 | 4.17 | 97 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10/31/14(15) | 10.00 | 0.03 | (0.06) | (0.03) | (0.02) | — | (0.02 | ) | (0.05) | 9.95 | (0.29 | )(7) | 24,721 | 1.15(8) | 3.85(8) | 2.09(8) | 83(7) |
Footnote Legend
(1) | Computed using average shares outstanding. |
(2) | Sales charges, where applicable, are not reflected in the total return calculation. |
(3) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for the Alternative Income Solution Fund for Class A is 2.45%, for Class C is 3.20% and for Class I is 2.20% for the year ended October 31, 2015 and the period ended October 31, 2014, respectively. |
(4) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for the Alternative Inflation Solution Fund for Class A is 2.40%, for Class C is 3.15% and for Class I is 2.15% for the year ended October 31, 2015 and the period ended October 31, 2014, respectively. |
(5) | The ratio of net expenses to average net assets excluding dividend and interest expense on securities sold short for the Alternative Total Solution Fund for Class A is 2.68% and 2.60%, for Class C is 3.43% and 3.35%, for Class I is 2.43% and 2.35% for the year ended October 31, 2015 and the period ended October 31, 2014, respectively and for Class R6 is 2.41% for the period ended October 31, 2015. |
(6) | Inception date April 23, 2014. |
(7) | Not annualized. |
(8) | Annualized. |
(9) | Amount is less than $0.005 or 0.005%. |
(10) | Consolidated Financial Highlights. |
(11) | Inception date November 19, 2014. |
(12) | Inception date June 5, 2015. |
(13) | Inception date July 20, 2015. |
(14) | Inception date September 9, 2015. |
(15) | Inception date September 8, 2014. |
See Notes to Financial Statements
98
Table of Contents
VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
Note 1. Organization
Virtus Alternative Solutions Trust (the “Trust”) is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. As of the date of this report the Trust is comprised of six non-diversified funds (Alternative Income Solution Fund, Alternative Inflation Solution Fund, Alternative Total Solution Fund, Credit Opportunities Fund, Multi-Strategy Target Return Fund and Select MLP and Energy Fund) and one diversified fund (Strategic Income Fund) each having a distinct investment objective outlined below.
The Funds have the following investment objectives:
Investment Objective(s) | ||
Alternative Income Solution Fund | Maximizing current income while considering capital appreciation | |
Alternative Inflation Solution Fund | Total return that exceeds the rate of inflation | |
Alternative Total Solution Fund | Long-term capital appreciation through investments that have a low correlation to traditional asset classes | |
Credit Opportunities Fund | Total return with a secondary objective of income | |
Multi-Strategy Target Return Fund | Long-term total return | |
Select MLP and Energy Fund | Total return with a secondary objective of income | |
Strategic Income Fund | Seeking total return comprised of income and capital appreciation |
There is no guarantee that a Fund will achieve its objective(s).
All of the Funds offer Class A shares, Class C shares and Class I shares.
Effective November 19, 2014, the Alternative Total Solution Fund began offering Class R6 shares. The Credit Opportunities Fund also offers Class R6 shares.
Class A shares are sold with a front-end sales charge of up to 5.75% (up to 3.75% for Strategic Income Fund) with some exceptions. Generally, Class A shares are not subject to any charges by the Funds when redeemed; however, a 1% contingent deferred sales charge (“CDSC”) may be imposed on certain redemptions made within a certain period following purchases on which a finder’s fee has been paid. The period for which the CDSC applies for the Funds is 18 months. The CDSC period begins on the last day of the month preceding the month in which the purchase was made.
Class C shares are generally sold with a 1% CDSC, applicable if redeemed within one year of purchase. Class I shares and Class R6 shares are sold without a sales charge or CDSC.
Virtus Mutual Funds may impose an annual fee on accounts having balances of less than $2,500. The small account fee may be waived In certain circumstances, as disclosed in the prospectus and/or statement of additional information. The fees collected will be used to offset certain expenses of the Funds.
Each class of shares has identical voting, dividend, liquidation and other rights and the same terms and conditions, except that each class bears different distribution and/or service fees under a Rule 12b-1 and/or shareholder service plan (“12b-1 plan”) approved by the Trust’s Board of Trustees (the “Board”) and has exclusive voting rights with respect to such plan(s). Class I and Class R6 shares are not subject to a 12b-1 plan. Income and other expenses and realized and unrealized gains and losses of each Fund are borne pro rata by the holders of each class of shares.
Note 2. Significant Accounting Policies
The Trust is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to Investment Companies. The significant accounting policies consistently followed by the Trust in the preparation of its financial statements are summarized below and for derivatives, included in Note 3 below. 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 amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates, and those differences could be significant.
A. Basis of Consolidation
The accompanying consolidated financial statements of Alternative Total Solution Fund include the account of VATS Offshore Fund, Ltd (the “Subsidiary”), which is a wholly-owned subsidiary of Alternative Total Solution Fund and is organized as a company under the laws of the Cayman Islands and primarily invests in commodity-related instruments. The Subsidiary is not registered under the 1940 Act. The Subsidiary enables Alternative Total Solution Fund to hold these commodity-related instruments and satisfy regulated investment company tax requirements. Alternative Total Solution Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary at October 31, 2015 were $9,170 and 10% of Alternative Total Solution Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to Alternative Total Solution Fund, except that the Subsidiary may invest without limitation in commodity-related instruments.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
B. Security Valuation
Security valuation procedures for each Fund, which include nightly price variance as well as back-testing such as bi-weekly unchanged price, monthly secondary source and transaction analysis, have been approved by the Board. All internally fair valued securities are approved by a valuation committee (the “Valuation Committee”) appointed by the Board. The Valuation Committee is comprised of certain members of management as identified to the Board, and convenes independently from portfolio management. All internally fair valued securities, are updated daily and reviewed in detail by the Valuation Committee monthly unless changes occur within the period. The Valuation Committee reviews the validity of any model inputs and any changes to the model. Fair valuations are reviewed by the Board at least quarterly.
Each Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Fund’s policy is to recognize transfers between levels at the end of the reporting period.
● | Level 1 — | quoted prices in active markets for identical securities (security types generally include listed equities) | ||
● | Level 2 — | prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) | ||
● | Level 3 — | prices determined using significant unobservable inputs (including the Valuation Committee’s own assumptions in determining the fair value of investments) |
A description of the valuation techniques applied to a Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded, or if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Restricted equity securities and private placements that are not widely traded, are illiquid or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Certain non-U.S. securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that a Fund calculates its net asset value (“NAV”) at the close of regular trading on the New York Stock Exchange (“NYSE”) (generally, 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases the Funds fair value non-U.S. securities using an independent pricing service which considers the correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as ADRs, financial futures, ETFs and certain indexes as well as prices for similar securities. Such fair valuations are categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent basis.
Debt securities, including restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, and current day trade information, as well as dealer supplied prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments such as mortgage-backed and asset-backed securities may also incorporate collateral analysis and utilize cash flow models for valuation and are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are generally categorized as Level 2 in the hierarchy. Debt securities that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee are generally categorized as Level 3 in the hierarchy. .
Claims are valued by brokers based on pricing models that take into account, among other factors, both cash and non-cash assets. The valuation is derived from expected cash flow of the claims and the non-cash assets, which include all real estate, private equity or other securities within the estate. To the extent that these inputs are observable, the values of the claims are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Listed derivatives that are actively traded including options and futures contracts are valued at the last posted settlement price from the exchange where they are principally traded and are categorized as Level 1 in the hierarchy. Over-the-counter (OTC) derivative contracts, which include forward currency contracts, swaps, swaptions, options and equity linked instruments, are valued based on model prices provided by independent pricing services or from dealer quotes. Depending on the derivative type and the specific terms of the transaction, these models vary and include observable inputs in actively quoted markets including but not limited to: underlying reference entity details, indices, spreads, interest rates, yield curves, dividend and exchange rates. These instruments are generally categorized as Level 2 in the hierarchy. Centrally cleared swaps listed or traded on a bilateral or trade facility platform, such as a registered exchange, are valued at the last posted settlement price determined by the respective exchange. These securities are generally categorized as Level 2 within the hierarchy.
Investments in open-end mutual funds are valued at NAV. Investments in closed-end mutual funds are valued as of the close of regular trading on the NYSE, generally 4 p.m. Eastern time, each business day. Both are categorized as Level 1 in the hierarchy.
A summary of the inputs used to value the Funds’ net assets by each major security type is disclosed at the end of the Schedule of Investments and Securities Sold Short for each Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
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C. Security Transactions and Investment Income
Security transactions are recorded on the trade date. Realized gains and losses from sales of securities are determined on the identified cost basis. Realized gains and losses from sales of securities for the Credit Opportunities Fund and Strategic Income Fund are determined on the highest-in, first-out basis. Dividend income is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as a Fund is notified. Interest income is recorded on the accrual basis. Each Fund amortizes premiums and accretes discounts using the effective interest method.
Dividend income from REIT and MLP investments is recorded using Management’s estimate of the percentage of income included in distributions received from such investments based on historical dividend results. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments (i.e. a return of capital) or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT and MLP after its fiscal year-end, and may differ from the estimated amounts.
D. Investment Income and Return of Capital Estimates
The Select MLP and Energy Fund invests in master limited partnerships (“MLPs”) which make distributions that are primarily attributable to return of capital. The Fund records investment income and return of capital in the Statement of Operations using management’s estimate of the percentage of income included in the distributions received from each MLP based on historical information from the MLPs and other industry sources. These estimates may be adjusted based on information received from the MLPs after the tax and fiscal year ends.
The return of capital portion of the MLP distributions is a reduction to investment income and a reduction in the cost basis of each investment which increases net realized gain (loss) and net change in unrealized appreciation (depreciation). If the return of capital distributions exceed its cost basis, the distributions are treated as realized gains. The actual amounts of income and return of capital are only determined by each MLP after its fiscal year-end and may differ from the estimated amounts. For the fiscal year ended October 31, 2015, the Fund estimated that 100% of the MLP distributions received would be treated as a return of capital.
E. Income Taxes
Each Fund is treated as a separate taxable entity. It is the intention of each Fund in the Trust 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 Subsidiary is classified as a controlled foreign corporation under Subchapter M of the Internal Revenue Code. Therefore, the Alternative Total Solution Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Alternative Total Solution Fund in the current period nor carried forward to offset taxable income in future periods.
Certain Funds may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. Each Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests.
Management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. As of October 31, 2015, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from the year 2014 forward (with limited exceptions).
F. Distributions to Shareholders
Distributions are recorded by each Fund on the ex-dividend date and distributed quarterly for the Alternative Income Solution Fund and Credit Opportunities Fund, semi-annually for the Alternative Inflation Solution Fund, Alternative Total Solution Fund, Multi-Strategy Target Return Fund and Select MLP and Energy Fund and monthly for the Strategic Income Fund. Income and capital gain distributions are determined in accordance with income tax regulations that 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.
G. Expenses
Expenses incurred together by a Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expense to each fund or an alternative allocation method can be more appropriately used.
In addition to the net annual operating expenses that a Fund bears directly, the shareholders of a Fund indirectly bear the pro-rata expenses of any underlying mutual funds in which a Fund invests.
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H. Foreign Currency Translation
Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Funds do not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
I. When-issued Purchases and Forward Commitments (Delayed Delivery)
Certain Funds may engage in when-issued or forward commitment transactions. Transactions on a when-issued or forward commitment basis are also known as delayed delivery transactions. Delayed delivery transactions involve a commitment by a Fund to purchase or sell a security at a future date (ordinarily up to 90 days later). 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. Each Fund records when-issued and delayed delivery securities on the trade date. Each Fund maintains collateral for the securities purchased. Securities purchased on a when-issued or delayed delivery basis begin earning interest on the settlement date.
J. Short Sales
Certain Funds may sell securities short. A short sale is a transaction in which a Fund sells a security it does not own in anticipation of a decline in market price. To sell a security short, a Fund must borrow the security. The Fund’s obligation to replace the security borrowed and sold short will be fully collateralized at all times by the proceeds from the short sale retained by the broker and by cash and securities deposited in a segregated account with the Fund’s custodian. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will realize a loss, and if the price declines during the period, the Fund will realize a gain. Any realized gain will be decreased, and any realized loss increased, by the amount of transaction costs. On ex-dividend date, dividends on short sales are recorded as an expense to the Fund.
In accordance with the terms of its prime brokerage agreement, Alternative Income Solution Fund, Alternative Inflation Solution Fund and Alternative Total Solution Fund may receive rebate income or be charged a fee on borrowed securities which is under Interest expense on short sales on the Statements of Operations. Such income or fee is calculated on a daily basis based upon the market value of each borrowed security and a variable rate that is dependent upon the availability of such security.
K. Loan Agreements
Certain Funds may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Loan agreements are generally non-investment grade, and often involve borrowers that are highly leveraged. A Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Loan agreements are typically senior in the corporate capital structure of the borrower. 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. A 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.
When investing in loan participations, a 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 participation and only upon receipt by the lender of payments from the borrower. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan.
A Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Loan agreements may involve foreign borrowers and investments may be denominated in foreign currencies. 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.
The loan agreements have floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR (London Interbank Offered Rate), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a loan agreement is purchased a Fund may pay an assignment fee. On an ongoing basis, a Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
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L. Unfunded Commitments
The Funds may invest in floating rate loans. In connection with these investments, the Funds may also enter into unfunded corporate loan commitments (“commitments”). Commitments may obligate a Fund to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, a Fund earns a commitment fee, typically set as a percentage of the commitment amount. As of October 31, 2015, the Funds had the following unfunded loan commitments.
($ are reported in thousands)
| Unfunded Loan Commitment
| |||||||||
Borrower | Alternative Income Solution Fund | Alternative Total Solution Fund | ||||||||
CCO Holdings, LLC | $ | 35 | $ | 40 | ||||||
Charter Communications Operating, LLC | 30 | 30 |
M. Organizational and Offering Costs
Virtus Alternative Investment Advisers, Inc. (the “Adviser”) has agreed to pay all organizational costs associated with the establishment of the Alternative Income Solution Fund, Alternative Inflation Solution Fund and Alternative Total Solution Fund. Offering costs were paid by the Alternative Income Solution Fund, Alternative Inflation Solution and Alternative Total Solution Fund, and were amortized over a 12-month period beginning with the commencement of operations.
Note 3. | Derivative Financial Instruments |
Disclosures about derivative instruments and hedging activities are intended to enable 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. Summarized below are such disclosures and accounting policies for each specific type of derivative instrument used by certain Funds.
A. Futures Contracts
A futures contract is an agreement between two parties to purchase (long) or sell (short) a security at a set price for delivery on a future date. Upon entering into a futures contract, a Fund is required to pledge to the broker an amount of cash and/or securities equal to the “initial margin” requirements of the futures exchange on which the contract is traded. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by a Fund for financial statement purposes on a daily basis as unrealized appreciation or depreciation. When the contract expires or is closed, gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed is realized. This is presented in the Statement of Operations as net realized gain (loss) on futures contracts.
During the fiscal year, Alternative Income Solution Fund, Alternative Inflation Solution Fund, Alternative Total Solution Fund and Multi-Strategy Target Return Fund utilized futures to optimize performance by gaining exposure to broad markets or to hedge the risk of securities within the portfolios. The potential risks to each such Fund are that 1) the use of futures may result in larger losses or smaller gains than the use of more traditional investments, 2) the prices of futures and the price movements of the securities that the future is intended to simulate may not correlate well, 3) the Fund’s success in using futures will be dependent upon the subadviser’s ability to correctly predict such price movements, 4) liquidity of futures can be adversely affected by market factors, and the prices of such securities may move in unexpected ways, and 5) if the Fund cannot close out a futures position, it may be compelled to continue to make daily cash payments to the broker to meet margin requirements, thus increasing transaction costs. Futures contracts outstanding at period end, if any, are listed after each Fund’s Schedule of Investments and Securities Sold Short.
B. Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by a Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of a forward foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in U.S. dollar without the delivery of foreign currency. During the fiscal year, Alternative Income Solution Fund, Alternative Inflation Solution Fund, Alternative Total Solution Fund, Credit Opportunities Fund, Multi-Strategy Target Return Fund and Strategic Income Fund entered into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). Forward foreign currency contracts outstanding at period end, if any, are listed after each Fund’s Schedule of Investments and Securities Sold Short.
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C. Options Contracts
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. Certain Funds may purchase or write both put and call options on portfolio securities. A Fund doing so is subject to equity price risk and/or foreign currency risk in the normal course of pursuing its investment objectives.
When a Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When a Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. Holdings of the Fund designated to cover outstanding written options are noted in the Schedules of Investments. Purchased options are reported as an asset within “Investment securities at value” in the Statement of Assets and Liabilities. Written options are reported as a liability within “Written options at value”. Changes in value of the purchased option are included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. Changes in value of written options are included in “Net change in unrealized appreciation (depreciation) on written options” in the Statement of Operations.
If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in “Net realized gain (loss) on investments” in the Statement of Operations. Gain or loss on written options is presented separately as “Net realized gain (loss) on written options” in the Statement of Operations.
The risk in writing call options is that the Fund gives up the opportunity for profit if the market price/foreign currency rate of the referenced security/currency increases and the option is exercised. The risk in writing put options is that the Fund may incur a loss if the market price/foreign currency rate of the referenced security/currency decreases and the option is exercised. The risk in buying options is that the Fund pays a premium whether or not the option is exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. Writers (sellers) of options are subject to unlimited risk of loss, as the seller will be obligated to deliver or take delivery of the security at a predetermined price which may, upon exercise of the option, be significantly different from the then-market value.
During the fiscal year, Alternative Income Solution Fund, Alternative Inflation Solution Fund, Alternative Total Solution Fund and Multi-Strategy Target Return Fund used options contracts to hedge against market and idiosyncratic risk or to reduce portfolio volatility. Strategic Income Fund pursued an option income strategy whereby it purchases and sells out-of-the-money puts and calls, creating an options spread designed to generate a consistent level of option cash flow which should result in additional yield.
The Funds had transactions in written options during the period ended October 31, 2015 as follows ($ reported in 000s):
Alternative Total Solution Fund | ||||||||
Numbers of Contracts | Premiums Received | |||||||
Options outstanding at October 31, 2014 | 13 | $ 1 | ||||||
Options written | 3,394 | 386 | ||||||
Options closed | (1,303) | (174) | ||||||
Options expired | (1,834) | (193) | ||||||
Options exercised | (18) | (3) | ||||||
|
|
|
| |||||
Options outstanding at October 31, 2015 | 252 | $ 17 | ||||||
|
|
|
|
Multi-Strategy Target Return Fund | ||||||||
Numbers of Contracts | Premiums Received | |||||||
Options outstanding at July 20, 2015 | — | $ — | ||||||
Options written | 203,315 | 693 | ||||||
Options closed | (13,100) | (68) | ||||||
Options expired | — | — | ||||||
Options exercised | — | — | ||||||
|
|
|
| |||||
Options outstanding at October 31, 2015 | 190,215 | $625 | ||||||
|
|
|
|
Strategic Income Fund | ||||||||
Numbers of Contracts | Premiums Received | |||||||
Options outstanding at October 31, 2014 | 362 | $ 78 | ||||||
Options written | 8,640 | 1,868 | ||||||
Options closed | (6,768) | (1,444) | ||||||
Options expired | (2,148) | (483) | ||||||
Options exercised | — | — | ||||||
|
|
|
| |||||
Options outstanding at October 31, 2015 | 86 | $ 19 | ||||||
|
|
|
|
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D. Swaps
Certain Funds enter into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The value of the swap is reflected on the Statements of Assets and Liabilities as “Swaps at value”. Swaps are marked-to-market daily and changes in value are recorded as “Net change in unrealized appreciation (depreciation) on swaps” in the Statements of Operations.
Any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown under “Swaps at value” in the Statements of Assets and Liabilities and amortized over the term of the swap. When a swap is terminated, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contracts is the unamortized premium received or paid. Cash settlements between the Fund and the counterparty are recognized as “Net realized gain (loss) on swaps” in the Statements of Operations. Swap contracts outstanding at period end, if any, are listed after each Fund’s Schedule of Investments and Securities Sold Short.
In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is submitted to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a clearing broker. Upon entering into a centrally cleared swap, a Fund is required to deposit initial margin with the clearing broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap.
Securities deposited as margin are designated on the Schedules of Investments and cash deposited is recorded on the Statements of Assets and Liabilities as “Cash pledged as collateral for swaps”.
Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
Credit default swaps – A Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on a combination or basket of single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to any of the referenced entities (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Fund will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. The Funds may enter into credit default swaps to manage their exposure to the market or certain sectors of the market, to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk).
During the fiscal year, the Alternative Income Solution Fund, Alternative Total Solution Fund, Credit Opportunities Fund and Strategic Income Fund utilized both single name credit default swaps and credit index swaps to gain exposure to short individual securities or to gain exposure to a credit or asset-backed index.
Total return swaps –Total return swaps are agreements in which there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Fund will receive a payment from or make a payment to the counterparty. Certain Funds may enter into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity) (equity risk and/or interest rate risk).
Certain Funds may enter into equity basket swaps to obtain exposure to a portfolio of long and short securities. Under the terms of the agreement, the swap is designed to function as a portfolio of direct investments in long and short equity or fixed income positions. This means that the Fund has the ability to trade in and out of long and short positions within the swap and will receive all of the economic benefits and risks equivalent to direct investments in these positions such as: capital appreciation (depreciation), corporate actions, and dividends and interest received and paid, all of which are reflected in the swap value. The swap value also includes interest charges and credits related to the notional values of the long and short positions and cash balances within the swap. These interest charges and credits are based on defined market rates plus or minus a specified spread and are referred to herein as “financing costs”. Positions within the swap are reset periodically, and financing costs are reset monthly.
During a reset, any unrealized gains (losses) on positions and accrued financing costs become available for cash settlement between the Fund and the swap counterparty. Cash settlement in and out of the swap may occur at a reset date or any other date, at the discretion of
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the Fund and the counterparty, over the life of the agreement, and is generally determined based on limits and thresholds established as part of the ISDA Master Agreement (defined below in “Derivative Risks”) between the Fund and the counterparty.
The value of the swap is derived from a combination of (i) the net value of the underlying positions, which are valued daily using the last sale or closing prices on the principal exchange on which the securities are traded; (ii) financing costs; (iii) the value of dividends or accrued interest; (iv) cash balances within the swap; and (v) other factors, as applicable. The swap involves additional risks than if the Fund has invested in the underlying positions directly, including: the risk that changes in the swap may not correlate perfectly with the underlying long and short securities; credit risk related to the counterparty’s failure to perform under contract terms; and liquidity risk related to the lack of a liquid market for the swap contract, which may limit the ability of the Fund to close out its position(s).
During the fiscal year, Alternative Total Solution Fund and Multi-Strategy Target Return Fund utilized total return swaps to gain exposure to broad markets or to hedge the risk of individual securities within the portfolios, obtain long or short exposure to the underlying reference instrument, obtain leverage and gain exposure to restricted markets in order to avoid the operational burden of ownership filing requirements. Swap Baskets were entered into to implement custom index exposure in one convenient trading instrument.
Interest rate swaps – Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. Certain Funds may enter into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk).
During the fiscal year, Multi-Strategy Target Return Fund used interest rate swaps to gain exposure to interest rates or to hedge interest rate risk within its portfolio.
Inflation swaps – Inflation swaps are contracts in which one party agrees to pay the cumulative percentage increase in a price index (e.g., the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), while the other pays a compounded fixed rate. One factor that may lead to changes in the values of inflation swaps is a change in real interest rates, which are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, which may lead to a decrease in value of an inflation swap. Certain Funds may enter into inflation swaps to hedge the inflation risk associated with non-inflation indexed investments, thereby creating “synthetic” inflation-indexed investments.
During the fiscal year, Multi-Strategy Target Return Fund used inflation swaps to hedge inflation risk within its portfolio or to gain exposure to the impact of inflation.
Variance swaps – Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on an underlying asset or index. Certain Funds may enter into variance swaps in an attempt to hedge equity market risk or adjust exposure to the equity markets.
During the fiscal year, Multi-Strategy Target Return Fund used variances swaps to capitalize on volatility in the equity markets.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
The following is a summary of derivative instruments categorized by primary risk exposure as of October 31, 2015:
Fair Values of Derivative Financial Instruments as of October 31, 2015 | ||||||||||||||
Derivative Assets | ||||||||||||||
Alternative Income Solution Fund | Alternative Inflation Solution Fund | Alternative Total Solution Fund | ||||||||||||
Primary Risk | Statements of Assets and Liabilities Location | Value | Value | Value | ||||||||||
Interest rate contracts | Net unrealized appreciation (depreciation) on investments1; | $ 13 | $ 8 | $ 42 | ||||||||||
| ||||||||||||||
Foreign currency exchange contracts | Net unrealized appreciation (depreciation) on investments1; Unrealized appreciation on forward foreign currency exchange contracts | 12 | — | 90 | ||||||||||
| ||||||||||||||
Equity contracts | Net unrealized appreciation (depreciation) on investments1; Investment in securities at value2; Swaps at value | — | — | 119 | ||||||||||
| ||||||||||||||
Commodity contracts | Net unrealized appreciation (depreciation) on investments1 | — | — | 54 | ||||||||||
| ||||||||||||||
Credit contracts | Swaps at value | 18 | — | 20 | ||||||||||
| ||||||||||||||
Total | $ 43 | $ 8 | $325 | |||||||||||
|
|
|
|
|
| |||||||||
Fair Values of Derivative Financial Instruments as of October 31, 2015 |
| |||||||||||||
Derivative Assets | ||||||||||||||
Credit Opportunities Fund | Multi-Strategy Target Return Fund | Strategic Income Fund | ||||||||||||
Primary Risk | Statements of Assets and Liabilities Location | Value | Value | Value | ||||||||||
Interest rate contracts | Net unrealized appreciation (depreciation) on investments1 Investment in securities at value2; Swaps at value | $ — | $1,197 | $ — | ||||||||||
| ||||||||||||||
Foreign currency exchange contracts | Net unrealized appreciation (depreciation) on investments1; Investment in securities at value2; Unrealized appreciation on forward foreign currency exchange contracts | 16 | 1,077 | 12 | ||||||||||
| ||||||||||||||
Equity contracts | Net unrealized appreciation (depreciation) on investments1; Investment in securities at value2; Swaps at value | — | 1,747 | 5 | ||||||||||
| ||||||||||||||
Commodity contracts | Net unrealized appreciation (depreciation) on investments1 | — | — | — | ||||||||||
| ||||||||||||||
Credit contracts | Investment in Securities at value2; Swaps at value | 512 | — | — | ||||||||||
| ||||||||||||||
Total | $528 | $4,021 | $ 17 | |||||||||||
|
|
|
|
|
|
1Includes cumulative appreciation (depreciation) on futures contracts and purchased options at value as reported in the Schedules of Investments. For futures contracts only current day’s variation margin is reported within the Statements of Assets and Liabilities.
2Includes purchased options and swaptions at value as reported in the Schedules of Investments.
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October 31, 2015
($ reported in thousands)
Fair Values of Derivative Financial Instruments as of October 31, 2015 | ||||||||||||||
Derivative Liabilities | ||||||||||||||
Alternative Income Solution Fund | Alternative Inflation Solution Fund | Alternative Total Solution Fund | ||||||||||||
Primary Risk | Statements of Assets and Liabilities Location | Value | Value | Value | ||||||||||
Interest rate contracts | Net unrealized appreciation (depreciation) on investments1 | $ 7 | $ — | $ 12 | ||||||||||
| ||||||||||||||
Foreign currency | Net unrealized appreciation (depreciation) on investments1; Unrealized depreciation on forward foreign currency exchange contracts | 3 | — | 200 | ||||||||||
| ||||||||||||||
Equity contracts | Net unrealized appreciation (depreciation) on investments1; Investment in securities at value2; Written options at value; Swaps at value | — | — | 36 | ||||||||||
| ||||||||||||||
Commodity contracts | Net unrealized appreciation (depreciation) on investments1 | — | — | 36 | ||||||||||
| ||||||||||||||
Credit contracts | Swaps at value | 7 | 4 | 8 | ||||||||||
| ||||||||||||||
Total | $17 | $ 4 | $292 | |||||||||||
|
|
|
|
|
| |||||||||
Fair Values of Derivative Financial Instruments as of October 31, 2015 | ||||||||||||||
Derivative Liabilities | ||||||||||||||
Credit Opportunities Fund | Multi-Strategy Target Return Fund | Strategic Income Fund | ||||||||||||
Primary Risk | Statements of Assets and Liabilities Location | Value | Value | Value | ||||||||||
Interest rate contracts | Net unrealized appreciation (depreciation) on investments1; | $ — | $ 546 | $ — | ||||||||||
| ||||||||||||||
Foreign currency | Net unrealized appreciation (depreciation) on investments1; | 54 | 743 | 6 | ||||||||||
| ||||||||||||||
Equity contracts | Net unrealized appreciation (depreciation) on investments1; Investment in securities at value2; Written options at value; Swaps at value | — | 529 | 15 | ||||||||||
| ||||||||||||||
Commodity contracts | Net unrealized appreciation (depreciation) on investments1 | — | — | — | ||||||||||
| ||||||||||||||
Credit contracts | Swaps at value | — | — | 107 | ||||||||||
| ||||||||||||||
Total | $ 54 | $1,818 | $128 | |||||||||||
|
|
|
|
|
|
1Includes cumulative appreciation (depreciation) on futures contracts and purchased options at value as reported in the Schedules of Investments. For futures contracts only current day’s variation margin is reported within the Statements of Assets and Liabilities.
2Includes purchased options and swaptions at value as reported in the Schedules of Investments.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended October 31, 2015 | ||||||||||||||||
Net Realized Gain (Loss) From | ||||||||||||||||
Alternative Income |
Alternative Inflation |
Alternative Total | ||||||||||||||
Interest rate contracts: | ||||||||||||||||
Futures contracts5 | $ (73) | $(281) | $ 194 | |||||||||||||
Swaps4 | 10 | 7 | 13 | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Forward foreign currency transactions1 | 163 | 10 | 564 | |||||||||||||
Futures Contracts5 | — | 38 | 78 | |||||||||||||
Purchased options2 | (6) | — | — | |||||||||||||
Equity contracts: | ||||||||||||||||
Futures contracts5 | — | (6) | 108 | |||||||||||||
Purchased options2 | — | — | (193) | |||||||||||||
Written options3 | — | — | 170 | |||||||||||||
Swaps4 | — | — | 450 | |||||||||||||
Commodity contracts: | ||||||||||||||||
Futures contracts5 | — | — | �� | 335 | ||||||||||||
Credit contracts: | ||||||||||||||||
Swaps4 | — | — | (1) | |||||||||||||
Purchased options2 | (44) | (23) | (36) | |||||||||||||
|
|
|
|
|
| |||||||||||
Total |
|
$ 50 |
|
|
$(255) |
|
|
$1,682 |
| |||||||
|
|
|
|
|
|
The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended October 31, 2015 | ||||||||||||||||
Net Realized Gain (Loss) From | ||||||||||||||||
Credit |
Multi-Strategy | Strategic Income Fund | ||||||||||||||
Interest rate contracts: | ||||||||||||||||
Futures contracts5 | $ — | $ (47) | $ — | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Forward foreign currency transactions1 | — | 1 | 11 | |||||||||||||
Purchased options2 | — | 133 | — | |||||||||||||
Written options3 | — | 31 | — | |||||||||||||
Equity contracts: | ||||||||||||||||
Futures contracts5 | — | (167) | — | |||||||||||||
Purchased options2 | — | — | (845) | |||||||||||||
Written options3 | — | — | 1,678 | |||||||||||||
Swaps4 | — | 55 | — | |||||||||||||
Credit contracts: | ||||||||||||||||
Swaps4 | (13) | — | 32 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total | $(13) | $ 6 | $ 876 | |||||||||||||
|
|
|
|
|
|
1Included in net realized gain (loss) on foreign currency transactions within the Statement of Operations.
2Included in net realized gain (loss) on investments within the Statement of Operations.
3Included in net realized gain (loss) on written options within the Statement of Operations.
4Included in net realized gain (loss) on swaps within the Statement of Operations.
5Included in net realized gain (loss) on futures within the Statement of Operations.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended October 31, 2015 | ||||||||||||||||
Net Change in Unrealized Appreciation/(Depreciation) on | ||||||||||||||||
Alternative Income |
Alternative Inflation |
Alternative Total | ||||||||||||||
Interest rate contracts: | ||||||||||||||||
Futures contracts6 | $ 19 | $ 83 | $ (36) | |||||||||||||
Purchased options2 | 8 | — | — | |||||||||||||
Purchased swaptions2 | (2) | 5 | — | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Futures contracts6 | — | (10) | 9 | |||||||||||||
Forward foreign currency transactions1 | (14) | — | 3 | (232) | ||||||||||||
Equity contracts: | ||||||||||||||||
Futures contracts 6 | — | — | (70) | |||||||||||||
Purchased options2 | — | — | 2 | |||||||||||||
Written options4 | — | — | (2) | |||||||||||||
Swaps5 | — | — | (13) | |||||||||||||
Commodity contracts: | ||||||||||||||||
Futures contracts6 | — | — | (49) | |||||||||||||
Credit contracts: | ||||||||||||||||
Purchased options2 | — | — | 5 | |||||||||||||
Swaps5 | (14) | (4) | (16) | |||||||||||||
|
|
|
|
|
| |||||||||||
Total | $ (3) | $ 74 | $(402) | |||||||||||||
|
|
|
|
|
|
The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended October 31, 2015 | ||||||||||||||||
Net Change in Unrealized Appreciation/(Depreciation) on | ||||||||||||||||
Credit |
Multi-Strategy |
Strategic | ||||||||||||||
Interest rate contracts: | ||||||||||||||||
Futures contracts6 | $ — | $(256) | $ — | |||||||||||||
Purchased swaptions2 | — | (115) | — | |||||||||||||
Swaps5 | — | 233 | — | |||||||||||||
Foreign currency exchange contracts: | ||||||||||||||||
Forward foreign currency transactions1 | (38) | (6) | 6 | |||||||||||||
Purchased options2 | — | (240) | — | |||||||||||||
Purchased swaptions2 | — | — | — | |||||||||||||
Written options4 | — | 80 | — | |||||||||||||
Equity contracts: | ||||||||||||||||
Futures contracts 6 | — | 492 | — | |||||||||||||
Purchased options2 | — | (249) | 10 | |||||||||||||
Written options4 | — | 15 | (12) | |||||||||||||
Swaps5 | — | 19 | — | |||||||||||||
Credit contracts: | ||||||||||||||||
Swaps5 | 4 | — | (87) | |||||||||||||
|
|
|
|
|
| |||||||||||
Total | $(34) | $ (27) | $(83) | |||||||||||||
|
|
|
|
|
|
1Included in net change in unrealized appreciation (depreciation) on foreign currency transactions within the Statement of Operations.
2Included in net change in unrealized appreciation (depreciation) on investments within the Statement of Operations.
3Amount less than $500.
4Included in net change in unrealized appreciation (depreciation) on written options within the Statement of Operations.
5Included in net change in unrealized appreciation (depreciation) on swaps within the Statement of Operations.
6Included in net change in unrealized appreciation (depreciation) on futures within the Statement of Operations.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
The quarterly average values (unless otherwise specified) of the derivatives held by the funds in the table shown below indicate the volume of derivative activity for each applicable Fund for the period ended October 31, 2015.
Alternative Income Solution Fund | Alternative | Alternative Total Solution Fund | ||||||||
Purchased Options1 | $ 12 | $ 7 | $ 38 | |||||||
Purchased Swaptions1 | 157 | — | — | |||||||
Written Options2 | — | — | 12 | |||||||
Futures Contracts-Long Positions3 | — | — | 40 | |||||||
Futures Contracts-Short Positions3 | (19) | (96) | 28 | |||||||
Forward Foreign Currency Exchange Purchase Contracts4 | 280 | 15 | 2,763 | |||||||
Forward Foreign Currency Exchange Sale Contracts5 | 1,011 | 38 | 4,173 | |||||||
Credit Default Swap Agreements - Buy Protection6 | 4327 | — | 4827 | |||||||
Credit Default Swap Agreements - Sell Protection6 | 2917 | — | 3247 | |||||||
Total Return Swap Agreements6 | 688 | 471 | 1,237 | |||||||
Total Return Basket Swap Agreements6 | — | — | 10,678 | |||||||
Credit Opportunities Fund7 | Multi-Strategy Target Return Fund7 | Strategic Income Fund | ||||||||
Purchased Options1 | $ — | $ 2,066 | $ 27 | |||||||
Purchased Swaptions1 | — | 789 | — | |||||||
Written Options2 | — | 625 | 66 | |||||||
Futures Contracts-Long Positions3 | — | 697 | — | |||||||
Futures Contracts-Short Positions3 | — | (461) | — | |||||||
Forward Foreign Currency Exchange Purchase Contracts4 | — | 1,358 | 94 | |||||||
Forward Foreign Currency Exchange Sale Contracts5 | 2,567 | 19,311 | 176 | |||||||
Interest Rate Swap Agreements6 | — | 31,602 | — | |||||||
Credit Default Swap Agreements - Buy Protection6 | 1,132 | — | 1,400 | |||||||
Credit Default Swap Agreements - Sell Protection6 | — | — | 1007 | |||||||
Total Return Swap Agreements6 | — | 1,536 | — | |||||||
Inflation Swap Agreements6 | — | 10,500 | — | |||||||
Variance Swap Agreements6 | — | 3 | — |
1Average premiums paid for the period (Unless footnote 7 below is specified).
2Average premiums received for the period (Unless footnote 7 below is specified).
3Average unrealized for the period (Unless footnote 7 below is specified).
4Average value at trade date payable (Unless footnote 7 below is specified).
5Average value at settlement date receivable (Unless footnote 7 below is specified).
6Notional.
7Values applied for end of the period holdings.
E. Derivative Risks
A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
A Fund’s risk of loss from counterparty credit risk on OTC derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by such Fund. For OTC purchased options, each Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by a Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty to perform.
With exchange traded purchased options and futures and centrally cleared swaps, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While
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October 31, 2015
($ reported in thousands)
clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
In order to better define its contractual rights and to secure rights that will help a Fund mitigate its counterparty risk, each Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, a Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event a Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.
F. | Collateral Requirements and Master Netting Agreements (“MNA”) |
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty.
Cash collateral that has been pledged to cover obligations of a Fund and cash collateral received from the counterparty, if any, is reported separately on the Statements of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by a Fund, if any, is noted in the Schedules of Investments. Typically, the Funds and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to a Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
At October 31, 2015, the Funds’ derivative assets and liabilities (by type) are as follows:
Alternative Income Solution Fund | Alternative Inflation Solution Fund | Alternative Total Solution Fund | ||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
Derivative Financial Instruments: | ||||||||||||||||||||||||
Futures contracts | $ | — | 2 | $ | — | $ | — | 2 | $ 21 | $ 5 | $ 25 | |||||||||||||
Forward foreign currency exchange contracts | 12 | 3 | — | — | 90 | 198 | ||||||||||||||||||
Swaps | 5 | 19 | — | 4 | 7 | 39 | ||||||||||||||||||
Purchased options1 | — | — | — | — | 65 | — | ||||||||||||||||||
Purchased swaptions1 | 13 | — | — | — | — | — | ||||||||||||||||||
Written options | — | — | — | — | — | 19 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 30 | $ | 22 | $ | — | $ 25 | $ 167 | $ 281 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Derivatives not subject to a MNA or similar agreement | — | 2 | — | — | 2 | (21) | (70) | (44) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total assets and liabilities subject to a MNA | $ | 30 | $ | 22 | $ | — | $ 4 | $ 97 | $ 237 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
At October 31, 2015, the Funds’ derivative assets and liabilities (by type) are as follows:
Credit Opportunities Fund | Multi-Strategy Target Return Fund | Strategic Income Fund | ||||||||||||||||||||||
Assets | Liabilities | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
Derivative Financial Instruments: | ||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | 28 | $ | 12 | $ | — | $ | — | ||||||||||||
Forward foreign currency exchange contracts | 16 | 54 | 210 | 216 | 12 | 6 | ||||||||||||||||||
Swaps | 4 | — | 844 | 592 | — | 56 | ||||||||||||||||||
Purchased options1 | — | — | 1,577 | — | 5 | — | ||||||||||||||||||
Purchased swaptions | — | — | 674 | — | — | — | ||||||||||||||||||
Written options | — | — | — | 530 | — | 15 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 20 | $ | 54 | $ | 3,333 | $ | 1,350 | $ | 17 | $ | 77 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Derivatives not subject to a MNA or similar agreement | — | — | (916) | (137) | (5) | (58) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total assets and liabilities subject to a MNA | $ | 20 | $ | 54 | $ | 2,417 | $ | 1,213 | $ | 12 | $ | 19 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1Includes purchased options at value as reported in the Schedule of Investments
2Amount is less than $500.
The following tables present the Funds’ derivative assets and liabilities by counterparty net of amounts available for offset under a MNA and net of the related collateral received/pledged by the Funds as of October 31, 2015:
Alternative Income Solution Fund | ||||||||||||||||||||
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received1 | Cash Collateral Received1 | Net Amount of Derivative Assets2 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 28 | $ | (22) | $ | — | $ | — | $ | 6 | ||||||||||
The Bank of New York Mellon | 2 | — | — | — | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 30 | $ | (22) | $ | — | $ | — | $ | 8 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 22 | $ | (22) | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 22 | $ | (22) | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Alternative Inflation Solution Fund
| ||||||||||||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1Excess of collateral received from the individual counterparty may not be shown for financial reporting purposes.
2Net amount represents the net amount receivable from the counterparty in the event of default.
3Excess of collateral pledged to the individual counterparty may not be shown for financial reporting purposes.
4Net amount represents the net amount payable due to the counterparty in the event of default.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Alternative Total Solution Fund | ||||||||||||||||||||
Counterparty |
Derivative | Derivatives Available for Offset | Non-cash Collateral Received1 | Cash Collateral Received1 | Net Amount of Derivative Assets2 | |||||||||||||||
Bank of America N.A. | $ | 52 | $ | (52) | $ | — | $ | — | $ | — | ||||||||||
JPMorgan Chase Bank N.A. | 43 | (43) | — | — | — | |||||||||||||||
The Bank of New York Mellon | 2 | — | — | — | 2 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 97 | $ | (95) | $ | — | $ | — | $ | 2 | ||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
Bank of America N.A. | $ | 155 | $ | (52) | $ | — | $ | — | $ | 103 | ||||||||||
JPMorgan Chase Bank N.A. | 68 | (43) | — | — | 25 | |||||||||||||||
Morgan Stanley | 14 | — | — | (14) | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 237 | $ | (95) | $ | — | $ | (14) | $ | 128 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Credit Opportunities Fund | ||||||||||||||||||||
Counterparty |
Derivative | Derivatives Available for Offset | Non-cash Collateral Received1 | Cash Collateral Received1 | Net Amount of Derivative Assets2 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 20 | $ | (20) | $ | — | $ | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 20 | $ | (20) | $ | — | $ | — | $ | — | ||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 54 | $ | (20) | $ | — | $ | — | $ | 34 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 54 | $ | (20) | $ | — | $ | — | $ | 34 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1Excess of collateral received from the individual counterparty may not be shown for financial reporting purposes.
2Net amount represents the net amount receivable from the counterparty in the event of default.
3Excess of collateral pledged to the individual counterparty may not be shown for financial reporting purposes.
4Net amount represents the net amount payable due to the counterparty in the event of default.
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Multi-Strategy Target Return Fund | ||||||||||||||||||||
Counterparty | Derivative Assets Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Received1 | Cash Collateral Received1 | Net Amount of Derivative Assets2 | |||||||||||||||
BNP Paribas | $ | 695 | $ | (360) | $ | — | $ | (270) | $ | 65 | ||||||||||
Citibank | 498 | (249) | — | (249) | — | |||||||||||||||
Deutsche Bank AG | 279 | — | — | (270) | 9 | |||||||||||||||
Nomura Global Financial Products, Inc. | 945 | (604) | — | (260) | 81 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 2,417 | $ | (1,213) | $ | — | $ | (1,049) | $ | 155 | ||||||||||
|
|
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|
|
|
|
|
|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
BNP Paribas | $ | 360 | $ | (360) | $ | — | $ | — | $ | — | ||||||||||
Citibank | 249 | (249) | — | — | — | |||||||||||||||
Nomura Global Financial Products, Inc. | 604 | (604) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,213 | $ | (1,213) | $ | — | $ | — | $ | — | ||||||||||
|
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|
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|
| |||||||||||
Strategic Income Fund | ||||||||||||||||||||
Counterparty |
Derivative | Derivatives Available for Offset | Non-cash Collateral Received1 | Cash Collateral Received1 | Net Amount of Derivative Assets2 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 12 | $ | (12) | $ | — | $ | — | $ | — | ||||||||||
|
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|
|
|
|
|
|
| |||||||||||
Total | $ | 12 | $ | (12) | $ | — | $ | — | $ | — | ||||||||||
|
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|
| |||||||||||
Counterparty | Derivative Liabilities Subject to a MNA by Counterparty | Derivatives Available for Offset | Non-cash Collateral Pledged3 | Cash Collateral Pledged3 | Net Amount of Derivative Liabilities4 | |||||||||||||||
JPMorgan Chase Bank N.A. | $ | 19 | $ | (12) | $ | — | $ | (1) | $ | 6 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 19 | $ | (12) | $ | — | $ | (1) | $ | 6 | ||||||||||
|
|
|
|
|
|
|
|
|
|
1Excess of collateral received from the individual counterparty may not be shown for financial reporting purposes.
2Net amount represents the net amount receivable from the counterparty in the event of default.
3Excess of collateral pledged to the individual counterparty may not be shown for financial reporting purposes.
4Net amount represents the net amount payable due to the counterparty in the event of default.
Note 4. | Investment Advisory Fee and Related Party Transactions |
A. | Adviser |
Virtus Alternative Investment Advisers, Inc. (“VAIA”) is an indirect wholly-owned subsidiary of Virtus Investment Partners, Inc. (“Virtus”). The Adviser manages the Funds’ investment program and general operations of the Funds, including oversight of the Funds’ subadvisers.
As compensation for its services to the Funds, the Adviser is entitled to a fee based upon the following annual rates as a percentage of the average daily net assets or managed assets of each Fund. “Managed assets” means the total assets of the Fund including any assets attributable to borrowings minus the Fund’s accrued liabilities other than such borrowings:
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
All Assets | 1st $5 | $5+ Billion | Based upon | |||||
Alternative Income Solution Fund | —% | 1.80% | 1.75% | Managed assets | ||||
Alternative Inflation Solution Fund | — | 1.75 | 1.70 | Managed assets | ||||
Alternative Total Solution Fund | — | 1.95 | 1.90 | Managed assets | ||||
Credit Opportunities Fund | 0.75 | — | — | Managed assets | ||||
Multi-Strategy Target Return Fund | — | 1.30 | 1.25 | Net assets | ||||
Select MLP and Energy Fund | 1.00 | — | — | Net assets | ||||
Strategic Income Fund | — | 0.80 | 0.75 | Managed assets |
For Alternative Total Solution Fund, the assets of the Subsidiary are excluded from the assets on which the above-described management fee is calculated. However, under the terms of a separate investment advisory agreement, the Subsidiary pays the Adviser an investment management fee calculated on the value of the Subsidiary’s average daily managed assets at the same annual rates.
During the period covered by these financial statements, the Strategic Income Fund invested a portion of its assets in Virtus Credit Opportunities Fund, an affiliated mutual fund. In order to avoid any duplication of advisory fees, the Adviser has voluntarily waived its advisory fees in an amount equal to that which would otherwise be paid by the Strategic Income Fund on the assets invested in the Credit Opportunities Fund. For the period covered by these financial statements, the waiver amounted to $2. This waiver is in addition to the expense limitation and/or fee waiver covered elsewhere in these financial statements and is included in the Statement of Operations in “expenses reimbursed and/or waived by the investment adviser”.
B. | Subadvisers |
The Adviser has appointed and oversees the activities of each of the subadvisers for the Funds as listed below. For Alternative Income Solution Fund, Alternative Inflation Solution Fund and Alternative Total Solution Fund, Cliffwater Investments LLC (“Cliffwater”), a joint venture of Cliffwater LLC and Virtus Partners, Inc., an affiliate of VAIA, makes recommendations to the Adviser with respect to hiring and terminating the Funds’ other subadvisers. Based on these recommendations, the Adviser makes decisions on the hiring and termination of subadvisers, and recommends such decisions to the Board. The subadvisers other than Cliffwater each manage a portion of the investments of each Fund, for which they are paid a fee by the Adviser.
At October 31, 2015, Subadvisers with respect to the Funds they serve are as follows:
Subadviser | ||||||||||||||||||||||||||||||
Fund | Cliffwater (1) | Armored (2) | Ascend (3) | Aviva (4) | Brigade (5) | Credit Suisse (6) | Duff & Phelps | Graham (8) | Harvest (9) | ICE Canyon (10) | LaSalle (11) | Lazard (12) | MAST (13) | Newfleet (14) | Owl Creek (15) | |||||||||||||||
Alternative Income Solution Fund | X | X | X | X | X | X | X | |||||||||||||||||||||||
Alternative Inflation Solution Fund | X | X | X | X | X | X | X | |||||||||||||||||||||||
Alternative Total Solution Fund | X | X | X | X | X | X | X | X | X | X | X | |||||||||||||||||||
Credit Opportunities Fund | X | |||||||||||||||||||||||||||||
Multi-Strategy Target Return Fund | X | |||||||||||||||||||||||||||||
Select MLP and Energy Fund | X | |||||||||||||||||||||||||||||
Strategic Income Fund | X |
(1) Cliffwater
(2) Armored Wolf, LLC (“Armored Wolf”)
(3) Ascend Capital, LLC (“Ascend”)
(4) Aviva Investors Americas LLC (“Aviva”)
(5) Brigade Capital Management, LLC (“Brigade”)
(6) Credit Suisse Asset Management, LLC (“Credit Suisse”)
(7) Duff & Phelps Investment Management Co. (“Duff & Phelps”) an indirect wholly-owned subsidiary of Virtus
(8) Graham Capital Management, L.P. (“Graham”)
(9) Harvest Fund Advisors LLC (“Harvest”)
(10) ICE Canyon LLC (“ICE Canyon”)
(11) LaSalle Investment Management Securities, LLC (“LaSalle”)
(12) Lazard Asset Management LLC (“Lazard”)
(13) MAST Capital Management, LLC (“MAST”)
(14) Newfleet Asset Management, LLC (“Newfleet”) an indirect wholly-owned subsidiary of Virtus
(15) Owl Creek Asset Management, L.P. (“Owl Creek”)
Out of its investment management fee, the Adviser pays each subadviser a subadvisory fee. For its services to Alternative Income Solution Fund, Alternative Inflation Solution Fund and Alternative Total Solution Fund, Cliffwater receives as its subadvisory fee 50% of the investment management fee, which is the portion of the fee remaining after the Adviser pays the other subadvisers and waives and/or pays the Funds any amounts applicable under the fee waiver and expense reimbursement arrangements. For its services to the Credit
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Opportunities Fund and Strategic Income Fund, Newfleet receives as its Subadvisory fee 50% of the net investment management fee. For its services to the Select MLP and Energy Fund, Duff & Phelps receives as its Subadvisory fee 50% of the net investment management fee.
C. | Expense Limits and Fee Waivers |
The Adviser has contractually agreed to limit each Fund’s operating expenses (excluding front-end or contingent deferred loads, dividend and interest expenses, taxes, brokerage commissions, expenses incurred in connection with any merger or reorganization, extraordinary expenses and acquired fund fees and expenses, if any), so that such expenses do not exceed, on an annualized basis, the following respective percentages of average daily managed assets or net assets through the dates indicated below.
Following the contractual period, the Adviser may discontinue these expense caps and/or fee waivers at any time.
Through | ||||||||||||||||||
Fund | Class A | Class C | Class I | Class R6 | Date | |||||||||||||
Alternative Income Solution Fund | 2.45% | 3.20% | 2.20% | — | 2/29/2016 | |||||||||||||
Alternative Inflation Solution Fund | 2.40 | 3.15 | 2.15 | — | 2/29/2016 | |||||||||||||
Alternative Total Solution Fund | 2.60 | 3.35 | 2.35 | 2.34% | 2/29/2016 | |||||||||||||
Credit Opportunities Fund | 1.35 | 2.10 | 1.10 | 1.04 | 2/28/2017 | |||||||||||||
Multi-Strategy Target Return Fund | 1.80 | 2.55 | 1.55 | — | 2/28/2017 | |||||||||||||
Select MLP and Energy Fund | 1.55 | 2.30 | 1.30 | — | 2/28/2017 | |||||||||||||
Strategic Income Fund | 1.40 | 2.15 | 1.15 | — | 2/29/2016 |
Under certain conditions, the Adviser may recapture operating expenses reimbursed within three fiscal 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, or if none, the expense limitation in effect at the time of the waver or reimbursement. All or portion of the following Adviser-reimbursed expenses ($ reported in thousands) may be recaptured by the fiscal year ending:
2017 | 2018 | |||||||
Alternative Income Solution Fund | $234 | $423 | ||||||
Alternative Inflation Solution Fund | 215 | 406 | ||||||
Alternative Total Solution Fund | 324 | 637 | ||||||
Credit Opportunities Fund | — | 175 | ||||||
Multi-Strategy Target Return Fund | — | 228 | ||||||
Select MLP and Energy Fund | — | 52 | ||||||
Strategic Income Fund | 86 | 215 |
D. | Distributor |
VP Distributors, LLC (“VP Distributors”), an indirect wholly-owned subsidiary of Virtus, serves as the distributor of each Fund’s shares. VP Distributors has advised the Funds that for the year ended October 31, 2015, there were $49 in commissions for Class A shares and less than $1 and $2 in CDSC for Class A shares and Class C shares, respectively.
In addition, each Fund pays VP Distributors distribution and/or service fees under a 12b-1 plan as a percentage of the average daily net assets of each respective class at the annual rates as follows: a service fee at a rate of 0.25% for Class A and Class C shares and a distribution fee of 0.75% for Class C shares. Class I and Class R6 shares are not subject to a 12b-1 plan.
Under certain circumstances, shares of certain Virtus Mutual Funds may be exchanged for shares of the same class of certain other Virtus Mutual Funds on the basis of the relative NAV per share at the time of the exchange. On exchanges with share classes that carry a CDSC, the CDSC schedule of the original shares purchased continues to apply.
E. | Administrator and Transfer Agent |
Virtus Fund Services, LLC, an indirect wholly-owned subsidiary of Virtus, serves as the Administrator and Transfer Agent of the Trust. BNY Mellon Investment Servicing (US) Inc. (“BNY Mellon”) services as Sub-Administrative and Accounting Agent of the Trust.
For the year ended October 31, 2015, the Funds incurred administration fees totaling $238 which are included in the Statements of Operations.
For the year ended October 31, 2015, the Funds incurred sub-administration fees of $876 of which $201 was voluntarily waived by BNY Mellon which are included in the Statements of Operations.
For the year ended October 31, 2015, the Funds incurred transfer agent fees totaling $131 which are included in the Statements of Operations. A portion of these fees was paid to outside entities that also provide services to the Funds.
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
F. Affiliated Shareholders
At October 31, 2015, Virtus and its affiliates held shares of the Funds which may be redeemed at any time that aggregated the following:
Aggregate | ||||
Shares | Net Asset Value | |||
Alternative Income Solution Fund | ||||
Class A | 10,534 | $ 94 | ||
Class C | 10,437 | 93 | ||
Class I | 4,206,303 | 37,520 | ||
Alternative Inflation Solution Fund | ||||
Class A | 10,016 | 93 | ||
Class C | 10,000 | 92 | ||
Class I | 3,188,684 | 29,719 | ||
Alternative Total Solution Fund | ||||
Class A | 10,163 | 99 | ||
Class C | 10,153 | 97 | ||
Class I | 5,367,739 | 52,228 | ||
Class R6 | 10,026 | 98 | ||
Credit Opportunities Fund | ||||
Class A | 10,042 | 99 | ||
Class C | 10,018 | 98 | ||
Class I | 10,050 | 99 | ||
Class R6 | 9,425,685 | 92,654 | ||
Multi-Strategy Target Return Fund | ||||
Class A | 10,000 | 100 | ||
Class C | 10,000 | 100 | ||
Class I | 4,980,000 | 49,949 | ||
Select MLP and Energy Fund | ||||
Class A | 10,000 | 98 | ||
Class C | 10,000 | 98 | ||
Class I | 480,000 | 4,699 | ||
Strategic Income Fund | ||||
Class A | 10,408 | 102 | ||
Class C | 10,321 | 101 | ||
Class I | 2,588,757 | 25,240 |
G. | Investments in Affiliates |
A summary of the Strategic Income Fund’s total long-term and short-term purchases and sales of affiliated underlying funds during the period ended October 31, 2015, is as follows:
Value beginning of period | Purchases | Sales Proceeds | Value, end of period | Dividend Income | Distributions of Realized Gains | |||||||||||||||||||||
Virtus Credit Opportunities Fund | $ | — | $ | 658 | $ | — | $ | 647 | $ | 3 | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | — | $ | 658 | $ | — | $ | 647 | $ | 3 | $ | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. | Purchase and Sales of Securities |
Purchases and sales of securities (excluding U.S. Government and agency securities, and short-term securities) during the period ended October 31, 2015, were as follows:
Purchases | Sales | |||
Alternative Income Solution Fund | $ 30,341 | $ 28,108 | ||
Alternative Inflation Solution Fund | 15,901 | 13,754 | ||
Alternative Total Solution Fund | 286,999 | 271,535 | ||
Credit Opportunities Fund | 56,408 | 7,248 | ||
Multi-Strategy Target Return Fund | 10,839 | 68 | ||
Select MLP and Energy Fund | 4,439 | — | ||
Strategic Income Fund | 29,039 | 19,808 |
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Purchases and sales of long-term U.S. Government and agency securities for the Funds during the period ended October 31, 2015, were as follows:
Purchases | Sales | |||||||
Alternative Inflation Solution Fund | $9,218 | $9,225 | ||||||
Alternative Total Solution Fund | 28 | 28 | ||||||
Multi-Strategy Target Return Fund | 1,310 | — | ||||||
Strategic Income Fund | 652 | 5,155 |
Note 6. | Capital Shares Transactions |
Transactions in shares of capital stock, during the periods ended as indicated below, were as follows:
Alternative Income Solution Fund | ||||||||||||||||
Year Ended October 31, 2015 |
From Inception | |||||||||||||||
SHARES |
AMOUNT |
SHARES |
AMOUNT | |||||||||||||
Class A | ||||||||||||||||
Sale of shares | 54 | $ 529 | 74 | $ 762 | ||||||||||||
Reinvestment of distributions | 3 | 29 | 1 | 8 | ||||||||||||
Shares repurchased | (45) | (433) | (1) | (11) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 12 | $ 125 | 74 | $ 759 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class C | ||||||||||||||||
Sale of shares | 38 | $ 371 | 39 | $ 389 | ||||||||||||
Reinvestment of distributions | 2 | 17 | — | (a) | 3 | |||||||||||
Shares repurchased | (14) | (128) | — | (a) | — | (a) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 26 | $ 260 | 39 | $ 392 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class I | ||||||||||||||||
Sale of shares | 7 | $ 70 | 4,075 | $40,775 | ||||||||||||
Reinvestment of distributions | 165 | 1,531 | 64 | 654 | ||||||||||||
Shares repurchased | (85) | (820) | (7) | (74) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 87 | $ 781 | 4,132 | $41,355 | ||||||||||||
|
|
|
|
|
|
|
|
Alternative Inflation Solution Fund | ||||||||||||||||
From Inception | ||||||||||||||||
Year Ended | April 23, 2014 to | |||||||||||||||
October 31, 2015 | October 31, 2014 | |||||||||||||||
SHARES |
AMOUNT |
SHARES |
AMOUNT | |||||||||||||
Class A | ||||||||||||||||
Sale of shares | 36 | $357 | 57 | $ 588 | ||||||||||||
Reinvestment of distributions | — | (a) | 1 | — | — | |||||||||||
Shares repurchased | (10) | (97) | (8) | (85) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 26 | $261 | 49 | $ 503 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class C | ||||||||||||||||
Sale of shares | 4 | $ 37 | 15 | $ 151 | ||||||||||||
Reinvestment of distributions | — | — | — | — | ||||||||||||
Shares repurchased | (1) | (10) | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 3 | $ 27 | 15 | $ 151 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class I | ||||||||||||||||
Sale of shares | 6 | $ 62 | 3,190 | $31,899 | ||||||||||||
Reinvestment of distributions | 9 | 87 | — | — | ||||||||||||
Shares repurchased | (5) | (49) | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 10 | $100 | 3,190 | $31,899 | ||||||||||||
|
|
|
|
|
|
|
|
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Alternative Total Solution Fund | ||||||||||||||||
Year Ended October 31, 2015 |
From Inception | |||||||||||||||
SHARES |
AMOUNT |
SHARES |
AMOUNT | |||||||||||||
Class A | ||||||||||||||||
Sale of shares | 971 | $ 9,728 | 779 | $ 7,919 | ||||||||||||
Reinvestment of distributions | 15 | 143 | — | — | ||||||||||||
Shares repurchased | (371) | (3,646) | (77) | (777) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 615 | $ 6,225 | 702 | $ 7,142 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class C | ||||||||||||||||
Sale of shares | 232 | $ 2,306 | 131 | $ 1,328 | ||||||||||||
Reinvestment of distributions | 2 | 23 | — | — | ||||||||||||
Shares repurchased | (41) | (392) | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 193 | $ 1,937 | 131 | $ 1,328 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class I | ||||||||||||||||
Sale of shares | 4,437 | $ 44,192 | 6,395 | $64,095 | ||||||||||||
Reinvestment of distributions | 102 | 1,011 | — | — | ||||||||||||
Shares repurchased | (2,766) | (27,139) | (118) | (1,196) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 1,773 | $ 18,064 | 6,277 | $62,899 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Class R6(1) | ||||||||||||||||
Sale of shares | 10 | $ 100 | — | $ — | ||||||||||||
Reinvestment of distributions | — | (a) | 2 | — | — | |||||||||||
Shares repurchased | — | (a) | — | (a) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net Increase / (Decrease) | 10 | $ 102 | — | $ — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Credit Opportunities Fund | ||||||||||||||||
From Inception | ||||||||||||||||
SHARES |
AMOUNT | |||||||||||||||
Class A | ||||||||||||||||
Sale of shares | 10 | $ 100 | ||||||||||||||
Reinvestment of distributions | — | (a) | 1 | |||||||||||||
Shares repurchased | — | — | ||||||||||||||
|
|
|
| |||||||||||||
Net Increase / (Decrease) | 10 | $ 101 | ||||||||||||||
|
|
|
| |||||||||||||
Class C | ||||||||||||||||
Sale of shares | 10 | $ 100 | ||||||||||||||
Reinvestment of distributions | — | (a) | — | (a) | ||||||||||||
Shares repurchased | — | — | ||||||||||||||
|
|
|
| |||||||||||||
Net Increase / (Decrease) | 10 | $ 100 | ||||||||||||||
|
|
|
| |||||||||||||
Class I | ||||||||||||||||
Sale of shares | 15 | $ 150 | ||||||||||||||
Reinvestment of distributions | — | (a) | 1 | |||||||||||||
Shares repurchased | — | — | ||||||||||||||
|
|
|
| |||||||||||||
Net Increase / (Decrease) | 15 | $ 151 | ||||||||||||||
|
|
|
| |||||||||||||
Class R6 | ||||||||||||||||
Sale of shares | 9,788 | $97,875 | ||||||||||||||
Reinvestment of distributions | 49 | 479 | ||||||||||||||
Shares repurchased | (70) | (684) | ||||||||||||||
|
|
|
| |||||||||||||
Net Increase / (Decrease) | 9,767 | $97,670 | ||||||||||||||
|
|
|
|
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NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Multi-Strategy Target Return | ||||||||||||||
From Inception | ||||||||||||||
SHARES |
AMOUNT | |||||||||||||
Class A | ||||||||||||||
Sale of shares | 86 | $ 854 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | — | (a) | — | (a) | ||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 86 | $ 854 | ||||||||||||
|
|
|
| |||||||||||
Class C | ||||||||||||||
Sale of shares | 45 | $ 444 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | — | — | ||||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 45 | $ 444 | ||||||||||||
|
|
|
| |||||||||||
Class I | ||||||||||||||
Sale of shares | 5,317 | $53,130 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | (1) | (10) | ||||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 5,316 | $53,120 | ||||||||||||
|
|
|
| |||||||||||
Select MLP and Energy Fund | ||||||||||||||
From Inception | ||||||||||||||
SHARES |
AMOUNT | |||||||||||||
Class A | ||||||||||||||
Sale of shares | 10 | $ 104 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | — | — | ||||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 10 | $ 104 | ||||||||||||
|
|
|
| |||||||||||
Class C | ||||||||||||||
Sale of shares | 10 | $ 100 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | — | — | ||||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 10 | $ 100 | ||||||||||||
|
|
|
| |||||||||||
Class I | ||||||||||||||
Sale of shares | 480 | $4,800 | ||||||||||||
Reinvestment of distributions | — | — | ||||||||||||
Shares repurchased | — | — | ||||||||||||
|
|
|
| |||||||||||
Net Increase / (Decrease) | 480 | $4,800 | ||||||||||||
|
|
|
| |||||||||||
Strategic Income Fund | ||||||||||||||
Year Ended October 31, 2015 |
From Inception | |||||||||||||
SHARES |
AMOUNT |
SHARES |
AMOUNT | |||||||||||
Class A | ||||||||||||||
Sale of shares | 295 | $ 2,901 | 12 | $120 | ||||||||||
Reinvestment of distributions | 3 | 27 | — | — | ||||||||||
Shares repurchased | (117) | (1,156) | — | — | ||||||||||
|
|
|
|
|
|
| ||||||||
Net Increase / (Decrease) | 181 | $ 1,772 | 12 | $120 | ||||||||||
|
|
|
|
|
|
|
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Strategic Income Fund | ||||||||||||||
Year Ended October 31, 2015 |
From Inception | |||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||
Class C | ||||||||||||||
Sale of shares | 47 | $ 468 | 10 | $ 100 | ||||||||||
Reinvestment of distributions | 1 | 6 | — | — | ||||||||||
Shares repurchased | (23) | (226) | — | — | ||||||||||
|
|
|
|
|
|
| ||||||||
Net Increase / (Decrease) | 25 | $ 248 | 10 | $ 100 | ||||||||||
|
|
|
|
|
|
| ||||||||
Class I | ||||||||||||||
Sale of shares | 197 | $1,963 | 2,480 | $24,800 | ||||||||||
Reinvestment of distributions | 105 | 1,033 | 5 | 52 | ||||||||||
Shares repurchased | (70) | (698) | — | — | ||||||||||
|
|
|
|
|
|
| ||||||||
Net Increase / (Decrease) | 232 | $2,298 | 2,485 | $24,852 | ||||||||||
|
|
|
|
|
|
|
Footnote Legend:
(1) | Inception date November 19, 2014. |
(a) | Amount is less than $500. |
Note 7. 10% Shareholders |
As of October 31, 2015, each Fund had individual shareholder account(s) and/or omnibus shareholder account(s) (comprised of a group of individual shareholders), which individually amounted to more than 10% of the total shares outstanding of each such Fund as detailed below:
% of Shares Outstanding | Number of Accounts | |||
Alternative Income Solution Fund | 97% | 1* | ||
Alternative Inflation Solution Fund | 97 | 1* | ||
Alternative Total Solution Fund | 78 | 2* | ||
Credit Opportunities Fund# | 71 | 1* | ||
Multi-Strategy Target Return Fund | 92 | 1* | ||
Select MLP and Energy Fund | 100 | 1* | ||
Strategic Income Fund | 88 | 1* |
Footnote Legend:
* | Shareholder account is affiliated. |
# | A significant portion of the Credit Opportunities Fund is owned by Virtus Multi-Sector Short Term Bond Fund. The Virtus Multi-Sector Short Term Bond Fund does not invest in Credit Opportunities Fund for the purpose of exercising management or control; however the investments made by the Virtus Multi-Sector Short Term Bond Fund within each of its principal investment strategies may represent a significant portion of Credit Opportunities Fund’s net assets. At October 31, 2015, the Virtus Multi-Sector Short Term Bond Fund was the owner of record of approximately 71% of the Credit Opportunities Fund. |
Note 8. Credit Risk | and Asset Concentration |
In countries with limited or developing markets, investments may present greater risks than in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of these investments and the income they generate, as well as a Fund’s ability to repatriate such amounts.
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/high-risk securities may be complex, and as a result, it may be more difficult for the Adviser and/or subadvisers to accurately predict risk.
Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that the market may fluctuate for other reasons, and there is no assurance that the insurance company will meet its obligations. Insured securities have been identified in the Schedule of Investments. A real or perceived decline in creditworthiness of a bond insurer can have an adverse impact on the value of insured bonds held in the Funds.
Certain Funds may invest a high percentage of their assets in specific sectors or countries of the market in their pursuit of a greater investment return. Fluctuations in these sectors of concentration may have a greater impact on a Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors.
Note 9. Borrowings |
The Alternative Total Solution Fund employs leverage in the form of using proceeds from shorts, which allows the Alternative Total Solution Fund to use its long positions as collateral, in order to purchase additional securities. Proceeds from shorts are secured by assets of the Alternative Total Solution Fund that are held with the Fund’s custodian in a separate account. The Alternative Total Solution Fund is permitted to borrow up to 33.33% of its total assets.
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
During the year ended October 31, 2015, the Alternative Total Solution Fund used proceeds from shorts for 365 days at an average interest rate of 0.69% and with an average daily borrowing balance during that period of $3,006. For the year ended October 31, 2015, the interest costs related to borrowing amounted to $21 and are included within the “Interest Expense” on the Statement of Operations.
As of October 31, 2015, outstanding borrowing amounted to $3,079, which is included in the balance of “Borrowings” on the Statement of Assets and Liabilities.
Note 10. Illiquid and Restricted Securities |
Investments are generally considered illiquid if they cannot be disposed of within seven days in the ordinary course of business at the approximate amount at which such securities have been valued by the Fund. Additionally, the following information is also considered in determining liquidity: the frequency of trades and quotes for the investment, whether the investment is listed for trading on a recognized domestic exchange and/or whether two or more brokers are willing to purchase or sell the security at a comparable price, the extent of market making activity in the investment and the nature of the market for investment. Illiquid securities are footnoted as such at the end of each Fund’s Schedule of Investments and Securities Sold Short where applicable. However, a portion of such footnoted securities could be liquid where the subadviser determines that some, though not all, of the position could be disposed of within seven days in the ordinary course of business at the approximate amount at which such securities have been valued by the Fund.
Restricted securities are not registered under the Securities Act of 1933, as amended (the “1933 Act”). Generally, 144A securities are excluded from this category, except where defined as illiquid.
Each Fund will bear any costs, including those involved in registration under the 1933 Act, in connection with the disposition of such securities.
At October 31, 2015, the Funds did not hold any securities that were both illiquid and restricted.
Note 11. Federal Income Tax Information |
At October 31, 2015, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Funds were as follows:
Fund | Federal Tax Cost (Proceeds) | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||
Alternative Income Solution Fund - Investments | $ 43,036 | $728 | $(5,358) | $(4,630) | ||||||||||||
Alternative Income Solution Fund - Short Sales | (875) | 28 | (6) | 22 | ||||||||||||
Alternative Inflation Solution Fund - Investments | 31,834 | 791 | (2,517) | (1,726) | ||||||||||||
Alternative Inflation Solution Fund - Short Sales | (779) | 21 | (5) | 16 | ||||||||||||
Alternative Total Solution Fund - Investments | 100,421 | 25 | (7,001) | (6,976) | ||||||||||||
Alternative Total Solution Fund - Short Sales and Written Options | (8,977) | 4 | (310) | (306) | ||||||||||||
Credit Opportunities Fund - Investments | 95,909 | 287 | (1,798) | (1,511) | ||||||||||||
Multi-Strategy Target Return Fund - Investments | 53,061 | 529 | (654) | (125) | ||||||||||||
Multi-Strategy Target Return Fund - Written Options | (625) | 127 | (32) | 95 | ||||||||||||
Select MLP and Energy Fund - Investments | 5,017 | 110 | (223) | (113) | ||||||||||||
Strategic Income Fund - Investments | 29,519 | 208 | (731) | (523) | ||||||||||||
Strategic Income Fund - Written Options | (15) | — | — | — |
The differences between book basis cost and tax basis cost were attributable primarily to the tax deferral of losses on wash sales, passive activity losses and the investment in the wholly-owned Subsidiary.
Certain Funds have capital-loss carryforwards available to offset future realized capital gains.
Short-Term | Long-Term | |||||
Alternative Income Solution Fund | 447 | — | ||||
Alternative Inflation Solution Fund | 619 | — | ||||
Credit Opportunities Fund | 481 | 12 | ||||
Strategic Income Fund | 171 | — |
Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized for tax years beginning after December 22, 2010, may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses.
For the period ended October 31, 2015, the following Funds utilized losses deferred in prior years against current year capital gains:
Alternative Inflation Solution Fund | $165 | |||
Strategic Income Fund | 23 |
The components of distributable earnings on a tax basis (excluding unrealized appreciation (depreciation) which are disclosed in the beginning of this note) consist of the following:
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | |||
Alternative Income Solution Fund | $ 391 | $ — | ||
Alternative Inflation Solution Fund | 157 | — | ||
Alternative Total Solution Fund | 3,283 | 473 | ||
Credit Opportunities Fund | 350 | — | ||
Multi-Strategy Target Return Fund | 313 | 70 | ||
Select MLP and Energy Fund | 8 | — | ||
Strategic Income Fund | 23 | — |
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, reversal of consolidation entries, disallowed expenses from short sales, swap income reclass and gain/loss reclass of forward contracts. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.
The tax character of dividends and distributions paid during the period ended October 31, 2015 and 2014 was as follows:
Ordinary Income | Long-Term Capital Gains | Total | ||||||
Alternative Income Solution Fund | 2015 | $1,561 | $ 16 | $1,577 | ||||
2014 | 665 | — | 665 | |||||
Alternative Inflation Solution Fund | 2015 | 88 | — | 88 | ||||
Alternative Total Solution Fund | 2015 | 1,159 | 29 | 1,188 | ||||
Credit Opportunities Fund | 2015 | 481 | — | 481 | ||||
Strategic Income Fund | 2015 | 1,071 | — | 1,071 | ||||
2014 | 49 | — | 49 |
Note 12. Reclassification of Capital Accounts |
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 NAV of a Fund. As of October 31, 2015, each Fund recorded reclassifications to increase (decrease) the accounts as listed below:
Undistributed Net Investment Income (Loss) | Accumulated Realized (Loss) | Net Unrealized Appreciation (Depreciation) | Paid in Capital on shares of Beneficial Interest | |||||
Alternative Income Solution Fund | $ 23 | $ (77) | $ — | $ 54 | ||||
Alternative Inflation Solution Fund | 27 | (64) | — | 37 | ||||
Alternative Total Solution Fund | 1,828 | (1,825) | (269) | 266 | ||||
Credit Opportunities Fund | (32) | 32 | — | — | ||||
Multi-Strategy Target Return Fund | 134 | (134) | — | — | ||||
Strategic Income Fund | 17 | (17) | — | — (a) |
Footnote Legend:
(a) | Amount is less than $500. |
Note 13. Regulatory Matters and Litigation |
From time to time, the Funds’ investment adviser and/or its affiliates and/or subadvisers may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting their products and other activities. At this time, the Funds’ investment adviser believes that the outcomes of such matters are not likely, either individually or in aggregate, to be material to these financial statements.
Note 14. Indemnifications |
Under the Trust’s organizational documents, its Trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Funds. Each Trustee has entered into an indemnification agreement with the Trust. In addition, in the normal course of business, the Funds enter into contracts that provide a variety of indemnifications to other parties. The Funds’ maximum exposure under
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 2015
($ reported in thousands)
these arrangements is unknown as this would involve future claims that may be made against the Funds and that have not occurred. However, the Funds have not had prior claims or losses pursuant to these arrangements and expect the risk of loss to be remote.
Note 15. Subsequent Event Evaluation |
Subsequent to the date of these financial statements, effective November 25, 2015, Armored Wolf ceased serving as a subadviser to the Alternative Inflation Solution Fund and the Alternative Total Solution Fund and was replaced by Fischer, Francis, Trees & Watts, Inc. (“FFTW”). Also subsequent to the date of these financial statements, on December 14, 2015, Owl Creek ceased serving as a subadviser to the Alternative Total Solution Fund.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Virtus Alternative Solutions Trust:
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments and securities sold short/schedules of investments and the related statements of operations and of changes in net assets and the financial highlights of Virtus Alternative Income Solution Fund, Virtus Alternative Inflation Solution Fund, Virtus Credit Opportunities Fund, Virtus Multi-Strategy Target Return Fund, Virtus Select MLP and Energy Fund and Virtus Strategic Income Fund, and the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments and securities sold short, and the related consolidated statements of operations and of changes in net assets and the financial highlights of Virtus Alternative Total Solution Fund and its subsidiary present fairly, in all material respects, the financial position of Virtus Alternative Income Solution Fund, Virtus Alternative Inflation Solution Fund, Virtus Alternative Total Solution Fund, Virtus Credit Opportunities Fund, Virtus Multi-Strategy Target Return Fund, Virtus Select MLP and Energy Fund and Virtus Strategic Income Fund (constituting Virtus Alternative Solutions Trust, hereafter referred to as the “Funds”) at October 31, 2015, the results of each of their operations for the year or period then ended, the changes in each of their 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 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 October 31, 2015 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 22, 2015
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VIRTUS ALTERNATIVE SOLUTIONS TRUST
TAX INFORMATION NOTICE
October 31, 2015
For the fiscal period ended October 31, 2015, 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 as long-term capital gains dividends (“LTCG”) taxable at a 20% rate, or lower depending on the shareholder’s income ($ reported in thousands). LTCG amounts, if subsequently different, will be designatred in the next annual report.
Fund | QDI | DRD | LTCG | |||||||
Alternative Income Solution Fund | 11.97 | % | 3.59 | % | $ — | |||||
Alternative Inflation Solution Fund | 100.00 | % | 16.60 | % | — | |||||
Alternative Total Solution Fund | 8.94 | % | 5.13 | % | 473 | |||||
Multi-Strategy Target Return Fund | — | % | — | % | 70 | |||||
Select MLP and Energy Fund | 100.00 | % | 100.00 | % | — |
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS CREDIT OPPORTUNITIES FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
The Board of Trustees (the “Board”) of Virtus Alternative Solutions Trust (the “Trust”) is responsible for determining whether to approve the establishment and continuation of the investment advisory agreement (the “Advisory Agreement”) between the Fund and Virtus Alternative Investment Advisers, Inc. (“VAIA”) and the subadvisory agreement (the “Subadvisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Fund, VAIA and Newfleet Asset Management, LLC (“Newfleet” or the “Subadviser”). At an in-person meeting heldJune 3, 2015, the Board, including a majority of the Trustees who are not interested persons of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Independent Trustees”), considered and approved the establishment of the Agreements, as further discussed below.
In connection with the approval of the Agreements, the Board requested and evaluated information provided by VAIA and the Subadviser which, in the Board’s view, constituted information necessary for the Board to form a judgment as to whether approval of each of the Agreements would be in the best interests of the Fund and its shareholders. The Board noted the affiliation of the Subadviser with VAIA and any potential conflicts of interest.
The Board was separately advised by independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the Fund and its shareholders. In its deliberations, the Board considered various factors, including those discussed below, none of which were controlling, and each Trustee may have attributed different weights to the various factors. The Board also discussed the proposed approval of the Agreements in private sessions with its independent legal counsel at which no representatives of management were present.
In considering whether to approve the Agreements with respect to the Fund, the Board reviewed and analyzed the factors it deemed relevant, including: (1) the nature, extent and quality of the services to be provided to the Fund by VAIA and the Subadviser; (2) model portfolio information; (3) the level and method of computing the Fund’s advisory and subadvisory fees, and comparisons of the Fund’s proposed advisory fee rates with those of a group of other funds with similar investment objectives; (4) the projected profitability of VAIA and its affiliates under the Advisory Agreement; (5) any “fall-out” benefits to VAIA, the Subadviser and their affiliates (i.e., ancillary benefits realized by VAIA, the Subadviser or their affiliates from VAIA’s or the Subadviser’s relationship with the Fund); (6) possible conflicts of interest; and (7) the terms of the Agreements.
Nature, Extent, and Quality of the Services
The Trustees received in advance of the meeting information provided by VAIA and the Subadviser, concerning a number of topics, including such company’s investment philosophy, resources, operations and compliance structure. The Trustees also received a presentation by VAIA’s senior management personnel, during which among other items, VAIA’s history, investment process, investment strategies, personnel, compliance procedures and the firm’s overall performance were reviewed and discussed. The Trustees noted that the Fund would be managed using a “manager of managers” structure that generally involves the use of one or more subadvisers to manage some or all of the Fund’s portfolio. Under this structure, VAIA is responsible for oversight of the Fund’s investment programs and day-to-day operations and for evaluating and selecting subadvisers on an ongoing basis and making any recommendations to the Board regarding hiring, retaining or replacing subadvisers. In considering the Agreement with VAIA, the Board considered VAIA’s process for supervising and managing the Fund’s subadviser, including (a) VAIA’s ability to select and monitor the subadviser; (b) VAIA’s ability to provide the services necessary to monitor the subadviser’s compliance with the Fund’s investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VAIA’s ability and willingness to identify instances in which a subadviser should be replaced and to carry out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to provide a high level and quality of services to the Fund; (c) the quality of VAIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services expected to be provided by VAIA and its affiliates to the Fund; (e) VAIA’s expected supervision of the Fund’s other service providers; and (f) VAIA’s risk management processes. It was noted that Virtus Fund Services, LLC, an affiliate of VAIA, was expected to serve as administrator and transfer agent and that VP Distributors, LLC (“VP Distributors”), an affiliate of VAIA, was expected to serve as distributor to the Fund. The Board also took into account its knowledge of VAIA’s management and the quality of the performance of its duties with respect to other Virtus Funds through Board meetings, discussions and reports, as well as information from the Trust’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures proposed to be established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
With respect to the services to be provided by the Subadviser, the Board considered information provided to the Board by the Subadviser, including the Subadviser’s Form ADV, as well as a presentation provided by portfolio management personnel of the Subadviser. With respect to the Subadvisory Agreement, the Board noted that the Subadviser would provide portfolio management, compliance with the Fund’s investment policies and procedures, compliance with applicable securities laws and assurances thereof. In considering approval of the Subadvisory Agreement, the Board also considered the Subadviser’s investment management process, including (a) the experience and capability of the Subadviser’s management and other personnel committed by the Subadviser to the Fund; (b) the financial condition of the Subadviser; (c) the quality of the Subadviser’s regulatory and legal compliance policies, procedures and systems; and (d) the Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate.
After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services expected to be provided by VAIA and the Subadviser were satisfactory and that there was a reasonable basis on which to conclude that each would provide a high quality of investment services to the Fund.
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS CREDIT OPPORTUNITIES FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
Investment Performance
Because the Fund had not commenced operations, the Board could not evaluate prior investment performance for the Fund. Investment performance was therefore not a material factor in the Board’s approval of the Agreements.
Management Fees and Total Expenses
The Board considered the fees proposed to be charged to the Fund for advisory services as well as the expected total expense levels of the Fund. Among other data provided, the Board noted that the proposed management fee and total expenses for the Fund were within the range of other funds deemed to be comparable to the Fund by management. The Board noted that the Fund was expected to have an expense cap in place to limit the total expenses incurred by the Fund and its shareholders. The Board also noted that the subadvisory fee for the Fund would be paid by VAIA out of its advisory fee rather than paid separately by the Fund. In this regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The Board also took into account the expected size of the Fund and the impact on expenses.
The Board concluded that the proposed advisory and subadvisory fees for the Fund were fair and reasonable in light of the usual and customary charges made for services of the same nature and quality and the other factors considered.
Projected Profitability
The Board also considered certain information relating to projected profitability that had been provided by VAIA. In this regard, the Board considered information regarding the projected profitability of VAIA for its management of the Fund, as well as the projected profitability of its affiliates providing other services to the Fund, such as distribution and administrative services provided to the Fund by a VAIA affiliate. In addition to the fees paid to VAIA and its affiliates, the Board considered any other benefits derived by VAIA or its affiliates from their relationship with the Fund. The Board concluded that the projected profitability to VAIA and its affiliates from the Fund was reasonable in light of the quality of the services to be rendered to the Fund by VAIA and its affiliates.
In considering the projected profitability to the Subadviser in connection with its relationship to the Fund, the Board noted that the fees under the Subadvisory Agreement would be paid by VAIA out of the fees that VAIA received under the Advisory Agreement, so that Fund shareholders would not be directly impacted by those fees. In considering the reasonableness of the fees payable by VAIA to the affiliated Subadviser, the Board noted that, because the Subadviser is an affiliate of VAIA, such profitability might be directly or indirectly shared by VAIA. For each of the above reasons, the Board concluded that the projected profitability to the Subadviser and its affiliates from their relationship with the Fund was not a material factor in approval of the Subadvisory Agreement.
Economies of Scale
The Board received and discussed information concerning whether VAIA should be expected to realize economies of scale as the Fund’s assets grow. The Board noted that expense caps were expected to be implemented for the Fund. The Board also took into account management’s discussion of the Fund’s management fee and subadvisory fee structure. The Board also took into account the expected size of the Fund. The Board noted that VAIA and the Fund may realize certain economies of scale if the assets of the Fund were to be materially higher than anticipated, particularly in relationship to certain fixed costs, and that shareholders of the Fund would have an opportunity to benefit from these economies of scale.
For similar reasons as stated above with respect to the Subadviser’s profitability, and based upon the expected size of the Fund to be managed by the Subadviser, the Board concluded that the potential for economies of scale in the Subadviser’s management of the Fund was not a material factor in the approval of the Subadvisory Agreements at this time.
Other Benefits
The Board considered other benefits that may be realized by VAIA and the Subadviser and their respective affiliates from their relationships with the Fund. Among them, the Board recognized that VP Distributors, LLC, an affiliate of VAIA, serves as the distributor for the Trust, and, as such, was expected to receive payments pursuant to Rule 12b-1 from the Fund to compensate it for providing shareholder services and selling activities, which could lead to growth in the Fund’s assets and corresponding benefits from such growth, including economies of scale. The Board also noted that Virtus Fund Services, LLC also was expected to provide administrative and transfer agency services to the Fund. The Board noted management’s discussion of the fact that there were no other direct benefits to the Subadviser or VAIA in providing investment advisory services to the Fund, other than the fees to be earned under the Agreements, although there may be certain indirect benefits gained, including to the extent that serving the Fund could provide the opportunity to provide advisory services to additional portfolios of the Trust or certain reputational benefits.
Conclusion
Based on all of the foregoing considerations, the Board, including a majority of the Independent Trustees, determined that approval of each Agreement was in the best interests of the Fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Agreements with respect to the Fund.
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS MULTI-STRATEGY TARGET RETURN FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
The Board of Trustees (the “Board”) of Virtus Alternative Solutions Trust (the “Trust”) is responsible for determining whether to approve the establishment and continuation of the investment advisory agreement (the “Advisory Agreement”) between the Fund and Virtus Alternative Investment Advisers, Inc. (“VAIA”) and the subadvisory agreement (the “Subadvisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Fund, VAIA and Aviva Investors Americas LLC (“Aviva” or the “Subadviser”). At an in-person meeting held March 2, 2015, the Board, including a majority of the Trustees who are not interested persons of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Independent Trustees”), considered and approved the establishment of the Agreements, as further discussed below.
In connection with the approval of the Agreements, the Board requested and evaluated information provided by VAIA and the Subadviser which, in the Board’s view, constituted information necessary for the Board to form a judgment as to whether approval of each of the Agreements would be in the best interests of the Fund and its shareholders.
The Board was separately advised by independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the Fund and its shareholders. In its deliberations, the Board considered various factors, including those discussed below, none of which were controlling, and each Trustee may have attributed different weights to the various factors. The Board also discussed the proposed approval of the Agreements in private sessions with its independent legal counsel at which no representatives of management were present.
In considering whether to approve the Agreements with respect to the Fund, the Board reviewed and analyzed the factors it deemed relevant, including: (1) the nature, extent and quality of the services to be provided to the Fund by VAIA and the Subadviser; (2) applicable comparative model performance information; (3) the level and method of computing the Fund’s advisory and subadvisory fees, and comparisons of the Fund’s proposed advisory fee rates with those of a group of other funds with similar investment objectives; (4) the projected profitability of VAIA and its affiliates under the Advisory Agreement; (5) any “fall-out” benefits to VAIA, the Subadviser and their affiliates (i.e., ancillary benefits realized by VAIA, the Subadviser or their affiliates from VAIA’s or the Subadviser’s relationship with the Fund); (6) possible conflicts of interest; and (7) the terms of the Agreements.
Nature, Extent, and Quality of the Services
The Trustees received in advance of the meeting information provided by VAIA and the Subadviser, concerning a number of topics, including such company’s investment philosophy, resources, operations and compliance structure. The Trustees also received a presentation by VAIA’s senior management personnel, during which among other items, VAIA’s history, investment process, investment strategies, personnel, compliance procedures and the firm’s overall performance were reviewed and discussed. The Trustees noted that the Fund would be managed using a “manager of managers” structure that generally involves the use of one or more subadvisers to manage some or all of the Fund’s portfolio. Under this structure, VAIA is responsible for oversight of the Fund’s investment programs and day-to-day operations and for evaluating and selecting subadvisers on an ongoing basis and making any recommendations to the Board regarding hiring, retaining or replacing subadvisers. In considering the Agreement with VAIA, the Board considered VAIA’s process for supervising and managing the Fund’s subadviser, including (a) VAIA’s ability to select and monitor the subadviser; (b) VAIA’s ability to provide the services necessary to monitor the subadviser’s compliance with the Fund’s investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VAIA’s ability and willingness to identify instances in which a subadviser should be replaced and to carry out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to provide a high level and quality of services to the Fund; (c) the quality of VAIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services expected to be provided by VAIA and its affiliates to the Fund; (e) VAIA’s expected supervision of the Fund’s other service providers; and (f) VAIA’s risk management processes. It was noted that Virtus Fund Services, LLC, an affiliate of VAIA, was expected to serve as administrator and transfer agent and that VP Distributors, LLC (“VP Distributors”), an affiliate of VAIA, was expected to serve as distributor to the Fund. The Board also took into account its knowledge of VAIA’s management and the quality of the performance of its duties with respect to other Virtus Funds through Board meetings, discussions and reports, as well as information from the Trust’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures proposed to be established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
With respect to the services to be provided by the Subadviser, the Board considered information provided to the Board by the Subadviser, including the Subadviser’s Form ADV, as well as a presentation provided by portfolio management personnel of the Subadviser. With respect to the Subadvisory Agreement, the Board noted that the Subadviser would provide portfolio management, compliance with the Fund’s investment policies and procedures, compliance with applicable securities laws and assurances thereof. In considering approval of the Subadvisory Agreement, the Board also considered the Subadviser’s investment management process, including (a) the experience and capability of the Subadviser’s management and other personnel committed by the Subadviser to the Fund; (b) the financial condition of the Subadviser; (c) the quality of the Subadviser’s regulatory and legal compliance policies, procedures and systems; and (d) the Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate.
After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services expected to be provided by VAIA and the Subadviser were satisfactory and that there was a reasonable basis on which to conclude that each would provide a high quality of investment services to the Fund.
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS MULTI-STRATEGY TARGET RETURN FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
Investment Performance
Because the Fund had not commenced operations, the Board could not evaluate prior investment performance for the Fund. The Board reviewed and was satisfied with certain model performance information provided that was based upon the Fund’s proposed investment strategies.
Management Fees and Total Expenses
The Board considered the fees proposed to be charged to the Fund for advisory services as well as the expected total expense levels of the Fund. Among other data provided, the Board noted that the proposed management fee and total expenses for the Fund were within the range of other funds deemed to be comparable to the Fund by management. The Board noted that the Fund was expected to have an expense cap in place to limit the total expenses incurred by the Fund and its shareholders. The Board also noted that the subadvisory fee for the Fund would be paid by VAIA out of its advisory fee rather than paid separately by the Fund. In this regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The Board also took into account the expected size of the Fund and the impact on expenses.
The Board concluded that the proposed advisory and subadvisory fees for the Fund were fair and reasonable in light of the usual and customary charges made for services of the same nature and quality and the other factors considered.
Projected Profitability
The Board also considered certain information relating to projected profitability that had been provided by VAIA. In this regard, the Board considered information regarding the projected profitability of VAIA for its management of the Fund, as well as the projected profitability of its affiliates providing other services to the Fund, such as distribution and administrative services provided to the Fund by a VAIA affiliate. In addition to the fees paid to VAIA and its affiliates, the Board considered any other benefits derived by VAIA or its affiliates from their relationship with the Fund. The Board concluded that the projected profitability to VAIA and its affiliates from the Fund was reasonable in light of the quality of the services to be rendered to the Fund by VAIA and its affiliates.
In considering the projected profitability to the Subadviser in connection with its relationship to the Fund, the Board noted that the fees under the Subadvisory Agreement would be paid by VAIA out of the fees that VAIA received under the Advisory Agreement, so that Fund shareholders would not be directly impacted by those fees. For each of the above reasons, the Board concluded that the projected profitability to the Subadviser and its affiliates from their relationship with the Fund was not a material factor in approval of the Subadvisory Agreement.
Economies of Scale
The Board received and discussed information concerning whether VAIA should be expected to realize economies of scale as the Fund’s assets grow. The Board noted that expense caps were expected to be implemented for the Fund. The Board also took into account management’s discussion of the Fund’s management fee and subadvisory fee structure. The Board also took into account the expected size of the Fund. The Board noted that VAIA and the Fund may realize certain economies of scale if the assets of the Fund were to be materially higher than anticipated, particularly in relationship to certain fixed costs, and that shareholders of the Fund would have an opportunity to benefit from these economies of scale.
For similar reasons as stated above with respect to the Subadviser’s profitability, and based upon the expected size of the Fund to be managed by the Subadviser, the Board concluded that the potential for economies of scale in the Subadviser’s management of the Fund was not a material factor in the approval of the Subadvisory Agreements at this time.
Other Benefits
The Board considered other benefits that may be realized by VAIA and the Subadviser and their respective affiliates from their relationships with the Fund. Among them, the Board recognized that VP Distributors, LLC, an affiliate of VAIA, serves as the distributor for the Trust, and, as such, was expected to receive payments pursuant to Rule 12b-1 from the Fund to compensate it for providing shareholder services and selling activities, which could lead to growth in the Fund’s assets and corresponding benefits from such growth, including economies of scale. The Board also noted that Virtus Fund Services, LLC also was expected to provide administrative and transfer agency services to the Fund. The Board noted management’s discussion of the fact that there were no other direct benefits to the Subadviser or VAIA in providing investment advisory services to the Fund, other than the fees to be earned under the Agreements, although there may be certain indirect benefits gained, including to the extent that serving the Fund could provide the opportunity to provide advisory services to additional portfolios of the Trust or certain reputational benefits.
Conclusion
Based on all of the foregoing considerations, the Board, including a majority of the Independent Trustees, determined that approval of each Agreement was in the best interests of the Fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Agreements with respect to the Fund.
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS SELECT MLP FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
The Board of Trustees (the “Board”) of Virtus Alternative Solutions Trust (the “Trust”) is responsible for determining whether to approve the establishment and continuation of the investment advisory agreement (the “Advisory Agreement”) between the Fund and Virtus Alternative Investment Advisers, Inc. (“VAIA”) and the subadvisory agreement (the “Subadvisory Agreement” and together with the Advisory Agreement, the “Agreements”) among the Fund, VAIA and Duff & Phelps Investment Management Co. (“Duff & Phelps” or the “Subadviser”). At an in-person meeting held September 1, 2015, the Board, including a majority of the Trustees who are not interested persons of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “Independent Trustees”), considered and approved the establishment of the Agreements, as further discussed below.
In connection with the approval of the Agreements, the Board requested and evaluated information provided by VAIA and the Subadviser which, in the Board’s view, constituted information necessary for the Board to form a judgment as to whether approval of each of the Agreements would be in the best interests of the Fund and its shareholders. The Board noted the affiliation of the Subadviser with VAIA and any potential conflicts of interest.
The Board was separately advised by independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the Fund and its shareholders. In its deliberations, the Board considered various factors, including those discussed below, none of which were controlling, and each Trustee may have attributed different weights to the various factors. The Board also discussed the proposed approval of the Agreements in private sessions with its independent legal counsel at which no representatives of management were present.
In considering whether to approve the Agreements with respect to the Fund, the Board reviewed and analyzed the factors it deemed relevant, including: (1) the nature, extent and quality of the services to be provided to the Fund by VAIA and the Subadviser; (2) applicable comparative model performance information; (3) the level and method of computing the Fund’s advisory and subadvisory fees, and comparisons of the Fund’s proposed advisory fee rates with those of a group of other funds with similar investment objectives; (4) the projected profitability of VAIA and its affiliates under the Advisory Agreement; (5) any “fall-out” benefits to VAIA, the Subadviser and their affiliates (i.e., ancillary benefits realized by VAIA, the Subadviser or their affiliates from VAIA’s or the Subadviser’s relationship with the Fund); (6) possible conflicts of interest; and (7) the terms of the Agreements.
Nature, Extent, and Quality of the Services
The Trustees received in advance of the meeting information provided by VAIA and the Subadviser, concerning a number of topics, including such company’s investment philosophy, resources, operations and compliance structure. The Trustees also received a presentation by VAIA’s senior management personnel, during which among other items, VAIA’s history, investment process, investment strategies, personnel, compliance procedures and the firm’s overall performance were reviewed and discussed. The Trustees noted that the Fund would be managed using a “manager of managers” structure that generally involves the use of one or more subadvisers to manage some or all of the Fund’s portfolio. Under this structure, VAIA is responsible for oversight of the Fund’s investment programs and day-to-day operations and for evaluating and selecting subadvisers on an ongoing basis and making any recommendations to the Board regarding hiring, retaining or replacing subadvisers. In considering the Agreement with VAIA, the Board considered VAIA’s process for supervising and managing the Fund’s subadviser, including (a) VAIA’s ability to select and monitor the subadviser; (b) VAIA’s ability to provide the services necessary to monitor the subadviser’s compliance with the Fund’s investment objectives, policies and restrictions as well as provide other oversight activities; and (c) VAIA’s ability and willingness to identify instances in which a subadviser should be replaced and to carry out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to provide a high level and quality of services to the Fund; (c) the quality of VAIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services expected to be provided by VAIA and its affiliates to the Fund; (e) VAIA’s expected supervision of the Fund’s other service providers; and (f) VAIA’s risk management processes. It was noted that Virtus Fund Services, LLC, an affiliate of VAIA, was expected to serve as administrator and transfer agent and that VP Distributors, LLC (“VP Distributors”), an affiliate of VAIA, was expected to serve as distributor to the Fund. The Board also took into account its knowledge of VAIA’s management and the quality of the performance of its duties with respect to other Virtus Funds through Board meetings, discussions and reports, as well as information from the Trust’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures proposed to be established pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended.
With respect to the services to be provided by the Subadviser, the Board considered information provided to the Board by the Subadviser, including the Subadviser’s Form ADV, as well as a presentation provided by portfolio management personnel of the Subadviser. With respect to the Subadvisory Agreement, the Board noted that the Subadviser would provide portfolio management, compliance with the Fund’s investment policies and procedures, compliance with applicable securities laws and assurances thereof. In considering approval of the Subadvisory Agreement, the Board also considered the Subadviser’s investment management process, including (a) the experience and capability of the Subadviser’s management and other personnel committed by the Subadviser to the Fund; (b) the financial condition of the Subadviser; (c) the quality of the Subadviser’s regulatory and legal compliance policies, procedures and systems; and (d) the Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account the Subadviser’s risk assessment and monitoring process. The Board noted the Subadviser’s regulatory history, including whether it was currently involved in any regulatory actions or investigations as well as material litigation, and any settlements and amelioratory actions undertaken, as appropriate.
After considering all of the information provided to them, the Trustees concluded that the nature, extent and quality of the services expected to be provided by VAIA and the Subadviser were satisfactory and that there was a reasonable basis on which to conclude that each would provide a high quality of investment services to the Fund.
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CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS FOR
VIRTUS SELECT MLP FUND (THE “FUND”) BY THE BOARD OF TRUSTEES
Investment Performance
Because the Fund had not commenced operations, the Board could not evaluate prior investment performance for the Fund. The Board reviewed and was satisfied with certain model performance information provided that was based upon the Fund’s proposed investment strategies.
Management Fees and Total Expenses
The Board considered the fees proposed to be charged to the Fund for advisory services as well as the expected total expense levels of the Fund. Among other data provided, the Board noted that the proposed management fee and total expenses for the Fund were within the range of other funds deemed to be comparable to the Fund by management. The Board noted that the Fund was expected to have an expense cap in place to limit the total expenses incurred by the Fund and its shareholders. The Board also noted that the subadvisory fee for the Fund would be paid by VAIA out of its advisory fee rather than paid separately by the Fund. In this regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The Board also took into account the expected size of the Fund and the impact on expenses.
The Board concluded that the proposed advisory and subadvisory fees for the Fund were fair and reasonable in light of the usual and customary charges made for services of the same nature and quality and the other factors considered.
Project Profitability
The Board also considered certain information relating to projected profitability that had been provided by VAIA. In this regard, the Board considered information regarding the projected profitability of VAIA for its management of the Fund, as well as the projected profitability of its affiliates providing other services to the Fund, such as distribution and administrative services provided to the Fund by a VAIA affiliate. In addition to the fees paid to VAIA and its affiliates, the Board considered any other benefits derived by VAIA or its affiliates from their relationship with the Fund. The Board concluded that the projected profitability to VAIA and its affiliates from the Fund was reasonable in light of the quality of the services to be rendered to the Fund by VAIA and its affiliates.
In considering the projected profitability to the Subadviser in connection with its relationship to the Fund, the Board noted that the fees under the Subadvisory Agreement would be paid by VAIA out of the fees that VAIA received under the Advisory Agreement, so that Fund shareholders would not be directly impacted by those fees. In considering the reasonableness of the fees payable by VAIA to the affiliated Subadviser, the Board noted that, because the Subadviser is an affiliate of VAIA, such profitability might be directly or indirectly shared by VAIA. For each of the above reasons, the Board concluded that the projected profitability to the Subadviser and its affiliates from their relationship with the Fund was not a material factor in approval of the Subadvisory Agreement.
Economies of Scale
The Board received and discussed information concerning whether VAIA should be expected to realize economies of scale as the Fund’s assets grow. The Board noted that expense caps were expected to be implemented for the Fund. The Board also took into account management’s discussion of the Fund’s management fee and subadvisory fee structure. The Board also took into account the expected size of the Fund. The Board noted that VAIA and the Fund may realize certain economies of scale if the assets of the Fund were to be materially higher than anticipated, particularly in relationship to certain fixed costs, and that shareholders of the Fund would have an opportunity to benefit from these economies of scale.
For similar reasons as stated above with respect to the Subadviser’s profitability, and based upon the expected size of the Fund to be managed by the Subadviser, the Board concluded that the potential for economies of scale in the Subadviser’s management of the Fund was not a material factor in the approval of the Subadvisory Agreements at this time.
Other Benefits
The Board considered other benefits that may be realized by VAIA and the Subadviser and their respective affiliates from their relationships with the Fund. Among them, the Board recognized that VP Distributors, LLC, an affiliate of VAIA, serves as the distributor for the Trust, and, as such, was expected to receive payments pursuant to Rule 12b-1 from the Fund to compensate it for providing shareholder services and selling activities, which could lead to growth in the Fund’s assets and corresponding benefits from such growth, including economies of scale. The Board also noted that Virtus Fund Services, LLC also was expected to provide administrative and transfer agency services to the Fund. The Board noted management’s discussion of the fact that there were no other direct benefits to the Subadviser or VAIA in providing investment advisory services to the Fund, other than the fees to be earned under the Agreements, although there may be certain indirect benefits gained, including to the extent that serving the Fund could provide the opportunity to provide advisory services to additional portfolios of the Trust or certain reputational benefits.
Conclusion
Based on all of the foregoing considerations, the Board, including a majority of the Independent Trustees, determined that approval of each Agreement was in the best interests of the Fund and its shareholders. Accordingly, the Board, and the Independent Trustees voting separately, approved the Agreements with respect to the Fund.
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(Unaudited)
Information pertaining to the trustees and officers of the Trust as of October 31, 2015, 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) 243-1574. 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 Number of Funds Overseen
| Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee
| |
Thomas F. Mann Jr. YOB: 1950 Elected: 2013 10 Funds
|
Managing Director and Group Head Financial Institutions Group (2003 to 2012), Societe Generale Sales of Capital Market Solutions and Products; Founder, MannMaxx Management (since 2010); Trustee (since 2002), The Hatteras Funds (20 portfolios); Trustee/Director (since 2011), Virtus Closed-End Funds (3 portfolios); Trustee (since 2013), Virtus Alternative Solutions Trust (7 portfolios); and Member (2011 to 2015), F-Squared Investments LLC.
| |
Philip R. McLoughlin Chairman YOB: 1946 Elected: 2013 69 Funds
|
Partner (2006 to 2010), Cross Pond Partners, LLC (investment management consultant); Managing Director (2009 to 2010), SeaCap Partners, LLC (investment management); Director (since 1991) and Chairman (since 2010), World Trust Fund (closed-end investment firm in Luxembourg); Director (since 1995), closed-end funds managed by Duff & Phelps Investment Management Co. (4 portfolios); Chairman (since 2002) and Trustee (since 1989), Virtus Mutual Fund Complex (46 portfolios); Chairman and Trustee (since 2003), Virtus Variable Insurance Trust (9 portfolios); Trustee/Director and Chairman (since 2011), Virtus Closed-End Funds (3 portfolios); and Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (7 portfolios).
| |
William R. Moyer YOB: 1944 Elected: 2013 10 Funds
|
Financial and Operations Principal (2006 to present), Newcastle Distributors LLC (broker dealer); Partner (2006 to 2012), CrossPond Partners, LLC (strategy consulting firm);Partner (2008 to 2010), Seacap Partners, LLC (investment management); former Chief Financial Officer, Phoenix Investment Partners; Trustee/Director (since 2011), Virtus Closed-End Funds (3 portfolios); and Trustee (since 2013), Virtus Alternative Solutions Trust (7 portfolios).
| |
James M. Oates YOB: 1946 Elected: 2013 56 Funds
|
Managing Director (since 1994), Wydown Group (consulting firm); Trustee (since 1987), Virtus Mutual Fund Complex (46 portfolios); Director (since 1996), Stifel Financial; Director (1998 to 2014), Connecticut River Bancorp; Chairman and Director (since 1999), Connecticut River Bank; Chairman (since 2000), Emerson Investment Management, Inc.; Director (2002 to 2014), New Hampshire Trust Company; Chairman and Trustee (since 2005), John Hancock Fund Complex (228 portfolios); Non-Executive Chairman (2007 to 2011), Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services); Trustee/Director (since 2013), Virtus Closed-End Funds (3 portfolios); and Trustee (since 2013), Virtus Alternative Solutions Trust (7 portfolios).
|
Interested Trustee
The individual listed below is an “interested person” of the Trust, as defined in Section 2(a)(19) of the 1940 Act, as amended, and the rules and regulations thereunder.
Name, Year of Birth, Year Elected and Number of Funds Overseen
| Principal Occupation(s) During Past 5 Years and Other Directorships Held by Trustee
| |
George R. Aylward YOB: 1964 Elected: 2013 67 Funds |
Trustee (since 2013), Virtus Alternative Solutions Trust (7 portfolios); Director, President and Chief Executive Officer (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions with Virtus affiliates (since 2005); Trustee (since 2006), Virtus Mutual Funds (46 portfolios); Chairman, President and Chief Executive Officer (since 2006), The Zweig Closed-End Funds (2 portfolios); Trustee (since 2012) and President (since 2010), Virtus Variable Insurance Trust (9 portfolios); Trustee and President (since 2011), Virtus Closed-End Funds (3 portfolios); and Director (since 2013), Virtus Global Funds, PLC (2 portfolios).
|
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FUND MANAGEMENT TABLES
(Unaudited)
(Continued)
Officers of the Trust Who Are Not Trustees
Name, Address and Year of Birth
| Principal Occupation(s) During Past 5 Years
| |
Patrick W. Bradley YOB: 1972
|
Senior Vice President, Chief Financial Officer and Treasurer (since 2013), Virtus Alternative Solutions Trust; Senior Vice President, Fund Services (since 2010), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various officer positions (since 2006) with Virtus affiliates; Senior Vice President (since 2013), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2004), Virtus Variable Insurance Trust; Senior Vice President (since 2013), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2006), Virtus Mutual Fund Complex; Senior Vice President (since 2013), Vice President (2012 to 2013) and Treasurer (Chief Financial Officer) (since 2007), The Zweig Closed-End Funds; Senior Vice President (since 2013), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2011), Virtus Closed-End Funds; Vice President and Assistant Treasurer (since 2011), Duff & Phelps Global Utility Income Fund Inc.; and Director (since 2013), Virtus Global Funds, PLC
| |
Nancy J. Engberg YOB: 1956
|
Vice President and Chief Compliance Officer (since 2013), Virtus Alternative Solutions Trust; Vice President (since 2008) and Chief Compliance Officer (2008 to 2011), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various officer positions (since 2003) with Virtus affiliates; Vice President and Chief Compliance Officer (since 2011), Virtus Mutual Fund Complex; Vice President (since 2010), Chief Compliance Officer (since 2011), Virtus Variable Insurance Trust; Vice President and Chief Compliance Officer (since 2011), Virtus Closed-End Funds; Vice President and Chief Compliance Officer (since 2012), The Zweig Closed-End Funds; and Chief Compliance Officer (since 2015, ETFis, Series Trust I.
| |
Jennifer Fromm YOB: 1973
|
Vice President, Chief Legal Officer, and Secretary (since 2013), Virtus Alternative Solutions Trust; Senior Counsel, Legal, Virtus Investment Partners, Inc. and/or certain of its subsidiaries (since 2007); Assistant Secretary of various Virtus-affiliated open-end funds (since 2008); and Vice President, Chief Legal Officer, and Secretary of Virtus Variable Insurance Trust (since 2013).
| |
Francis G. Waltman YOB: 1962
|
Executive Vice President (since 2013), Virtus Alternative Solutions Trust; Executive Vice President, Product Development (since 2009), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions (since 2006) with Virtus affiliates; Executive Vice President (since 2013), Senior Vice President (2008 to 2013), Virtus Mutual Fund Complex; Executive Vice President (since 2013), Senior Vice President (2010 to 2013), Virtus Variable Insurance Trust; Executive Vice President (since 2013), Senior Vice President (2011 to 2013), Virtus Closed-End Funds; and Director (since 2013), Virtus Global Funds PLC.
|
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Virtus Alternative Solutions Trust
101 Munson Street
Greenfield, MA 01301-9668
Trustees
Philip R. McLoughlin, Chairman
George R. Aylward
Thomas F. Mann
William R. Moyer
James M. Oates
Officers
George R. Aylward, President
Francis G. Waltman, Executive Vice President
W. Patrick Bradley, Senior Vice President,
Chief Financial Officer and Treasurer
Jennifer Fromm, Vice President, Chief Legal
Officer, Counsel and Secretary
Nancy J. Engberg, Vice President and
Chief Compliance Officer
Investment Adviser
Virtus Alternative Investment Advisers, Inc.
100 Pearl Street
Hartford, CT 06103-4506
Principal Underwriter
VP Distributors, LLC
100 Pearl Street
Hartford, CT 06103-4506
Administrator and Transfer Agent
Virtus Fund Services, LLC
100 Pearl Street
Hartford, CT 06103-4506
Custodian
Bank of New York Mellon
One Wall Street
New York, NY 10286
How to Contact Us
Mutual Fund Services | 1-800-243-1574 | |||
Adviser Consulting Group | 1-800-243-4361 | |||
Telephone Orders | 1-800-367-5877 | |||
Text Telephone | 1-800-243-1926 | |||
Website | http://www.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.
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P.O. Box 9874 Providence, RI 02940-8074 |
For more information about Virtus Mutual Funds,
please call your financial representative, or contact us
at 1-800-243-1574 or Virtus.com.
8554 | 12-15 |
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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) | Other than certain non-substantive changes, 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, 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 this item’s instructions. |
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) | The Registrant’s Board of Trustees has determined that William Moyer possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert.” Mr. Moyer is an “independent” trustee as defined in 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 each of the last two fiscal years 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 those fiscal years are $204,730 for 2015 and $19,780 for 2014. |
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Audit-Related Fees
(b) | The aggregate fees billed in each of the last two fiscal years 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 are $17,254 for 2015 and $3,075 for 2014. Such audit-related fees include out of pocket expenses and cross fund fees. |
Tax Fees
(c) | The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning are $51,250 for 2015 and $0 for 2014. |
“Tax Fees” are 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 in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2015 and $0 for 2014. |
(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 Board of Trustees of Virtus Alternative Solutions Trust (the “Fund”) has adopted policies and procedures with regard to the pre-approval of services provided by its independent auditors. Audit, audit-related and tax compliance services provided to the Fund on an annual basis require specific pre-approval by the Board. The Audit Committee must 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 Audit Committee 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 Committee without consideration on a specific case-by-case basis (“general pre-approval”).
The Audit Committee has determined that William Moyer, 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 Audit Committee 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) | 0% |
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(c) | 0% |
(d) | N/A |
(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 last two fiscal years of the registrant was $532,983 for 2015 and $522,953 for 2014. |
(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.
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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. |
(12.other) Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | Virtus Alternative Solutions Trust |
By (Signature and Title)* | /s/ George R. Aylward | |||
George R. Aylward, President | ||||
(principal executive officer) |
Date | 1/7/2016 |
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 | 1/7/2016 |
By (Signature and Title)* | /s/ W. Patrick Bradley | |||
W. Patrick Bradley, Senior Vice President, Chief Financial Officer and Treasurer | ||||
(principal financial and accounting officer) |
Date | 1/7/2016 |
* Print the name and title of each signing officer under his or her signature.