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Investment Opportunity

The fund seeks to generate high current income exempt from federal income tax by investing in a diversified portfolio of municipal bonds with varying maturities. The management team focuses on high quality tax-exempt municipal bonds, gauging the value of a security by issue type, credit quality, and bond structure. Issuers are selected based on sector (utility, healthcare, transportation, etc.), and the geographic opportunity presented by areas and regions that are experiencing economic stability.

Fund Risks

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.

Municipal Market: Events negatively impacting a municipal security, or the municipal bond market in general, may cause the fund to decrease in value.

State & AMT Tax: A portion of income may be subject to some state and/or local taxes and, for certain investors, a portion may be subject to the federal alternative minimum tax.

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.

Key Stats (as of 2/23/2017)

Inception: 1/30/2001
Ticker: HXBZX
CUSIP: 92828W312
Fund No: 1783
Net Assets by Fund: $170,027,436
Net Assets by Class: $58,448,268

Management Team

Tim Heaney, CFA
Tim Heaney, CFA Newfleet Asset Management, LLC

Industry start date: 1990

Start date with Fund: 2012

Lisa Leonard
Lisa Leonard Newfleet Asset Management, LLC

Industry start date: 1986

Start date with Fund: 2012

Newfleet Asset Management, LLC

Newfleet leverages the knowledge and skill of a team of investment professionals with expertise in every sector of the bond market, including evolving, specialized, and out-of-favor sectors. The team employs active sector rotation and disciplined risk management to portfolio construction.

Morningstar Ratings

Overall Rating

As of 1/31/2017 the Fund was rated 3 stars out of 254 funds, 3 stars out of 223 funds and 4 stars out of 150 funds within the Muni National Interm category for the 3-, 5- and 10 year periods, respectively.

Strong ratings are not indicative of positive fund performance.

Average Annual Total Returns

Monthly Performance (%) (as of 1/31/2017)
  3 Mon. YTD 1YR 3YR 5YR 10YR Since Inception
NAV -1.93 0.56 -1.00 2.84 2.23 4.11 4.55
POP -4.63 -2.20 -3.72 1.89 1.66 3.82 4.36
Quarterly Performance (%) (as of 12/30/2016)
  3 Mon. YTD 1YR 3YR 5YR 10YR Since Inception
NAV -3.31 -0.41 -0.41 3.25 2.68 4.02 4.54
POP -5.97 -3.15 -3.15 2.29 2.11 3.73 4.35
Index -3.06 0.24 0.24 3.55 3.04 4.13 NA

Index: Virtus Tax-Exempt Bond Fund Linked Benchmark
The Tax-Exempt Bond Linked Benchmark consists of the BofA Merrill Lynch 1-22 Year US Municipal Securities Index, a subset of the BofA Merrill Lynch US Municipal Securities Index including all securities with a remaining term to final maturity less than 22 years, calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment. Performance of the Tax-Exempt Bond Linked Benchmark prior to 6/30/2012 is that of the Bloomberg Barclays Municipal Bond Index.

Sales Charge and Expense

POP (Public Offering Price) performance reflects the deduction of the maximum sales charge of 2.75%. A contingent deferred sales charge of 0.50% may be imposed on certain redemptions within 18 months on purchases on which a finder’s fee has been paid.

The fund class gross expense ratio is 1.01%. The net expense ratio is 0.85%, which reflects a contractual expense reimbursement in effect through 01/31/2018.

Risk Statistics3 (as of 12/30/2016)

  Fund Index
R2 0.98 1.00
Beta 1.03 1.00
Alpha -0.39 0.00
Std Dev 3.05 2.93
Index: Virtus Tax-Exempt Bond Fund Linked Benchmark

Daily Price (as of 2/23/2017)

NAV Change ($)
11.14 0.01
POP Change ($)
11.46 0.02

Yields/Distributions1 (as of 1/31/2017)

Distribution Yield (at NAV) 2.39%
SEC Yield 2.64%
SEC Yield (gross) 2.47%
Distributions Current Month $0.022109
Distributions YTD $0.022109

Distribution History2 (January 2017)

Ex-Date 01/31/2017
Income $0.022109
STCG $0.000000
LTCG $0.000000
Reinvest NAV $11.12

Top Holdings (% Fund)
(as of 12/30/2016)

Metropolitan Washington Airports Authority, Dulles Toll Road Revenue, 0% 10/01/2041 2.97
New York City Municipal Water Finance Authority, Water & Sewer System Revenue, 5.75% 06/15/2040 2.16
New York City Transitional Finance Authority, Subordinate Future Tax Secured Revenue, 5% 05/01/2035 2.11
New Jersey Economic Development Authority, 5% 06/15/2022 1.93
DeKalb County Water & Sewer Revenue, 5.25% 10/01/2026 1.83
Harris County Health Facilities Development Corp., 7.25% 12/01/2035 1.63
Texas Municipal Gas Acquisition & Supply, Gas Supply Revenue, 1.25% 12/15/2016 1.62
Public Authority For Colorado Energy, Natural Gas Purchase Revenue, 6.25% 11/15/2028 1.61
Miami-Dade County Aviation Revenue, 5% 10/01/2024 1.60
Metropolitan Transportation Authority, 6.25% 11/15/2018 1.59

Top Sectors (% Fund)
(as of 12/30/2016)

Prerefunded / Escrowed to Maturity 14.30
Water & Sewer 12.05
Transportation 11.16
Hospital 8.79
Education 8.29

(as of 12/30/2016)

Duration 5.47 years

Morningstar Ratings

Overall Rating

As of 1/31/2017 the Fund was rated 3 stars out of 254 funds, 3 stars out of 223 funds and 4 stars out of 150 funds within the Muni National Interm category for the 3-, 5- and 10 year periods, respectively.

Strong ratings are not indicative of positive fund performance.

Investors should carefully consider the investment objectives, risks, charges and expenses of any Virtus Mutual Fund before investing. The prospectus and summary prospectus contains this and other information about the fund. Please contact your financial representative, call 1-800- 243-4361 or visit to obtain a current prospectus and/or summary prospectus. You should read the prospectus and/or summary prospectus carefully before you invest or send money.

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. Investment return and principal value will fluctuate, so your shares, when redeemed, may be worth more or less than their original cost.

Average annual total return is the annual compound return for the indicated period. It reflects the change in share price and the reinvestment of all dividends and capital gains. NAV returns do not include the effect of any applicable sales charges. POP and w/CDSC returns include the effect of maximum applicable sales charges.

Returns for periods of less than one year are cumulative total returns.

1 Yields/Distributions: Distribution Yield (at NAV) is calculated by (a) annualizing the latest distribution for fixed income funds or funds less than 1 year old (b) summing all distributions over the preceding 12 months for all other funds, and dividing the NAV on the last business date of the period. SEC Yield represents the net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the fund's public offering share price at the end of the 30-day period.  Gross SEC Yield represents the yield if there were no expense reimbursements.

2 Distribution History: Distributions are represented on a cash basis and may be reclassified at year end for tax purposes. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. STCG: Short Term Capital Gain, LTCG: Long Term Capital Gain

3 Risk Statistics:  R2 is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. Beta is a quantitative measure of the volatility of a given portfolio to the overall market. Alpha is a risk adjusted measure of an investment's excess return relative to a benchmark. A positive Alpha indicates that the investment produced a return greater than expected for the risk (as measured by Beta) taken. Standard Deviation measures variability of returns around the average return for an investment fund. Higher standard deviation suggests greater risk. Risk Statistics are calculated using 36 monthly returns.

4 Characteristics: For Equity Funds:Trailing P/E: Per-share stock price divided by the latest12-months Earnings per Share; Price/Cash Flow: Per-share stock price divided by the per-share operating cash flow; Price/Book: Per-share stock price divided by the latest 12-month per-share Book Value; 3-Year EPS Growth Rate: Average of earnings per share growth for latest 3-year period. The 3-Year EPS Growth Rate is not a forecast of the fund's performance.

4 Characteristics: For Fixed Income Funds:  Duration represents the interest rate sensitivity of a fixed income fund. For example, if a fund's duration is five years, a 1% increase in interest rates would result in a 5% decline in the fund's price. Similarly, a 1% decline in interest rates would result in a 5% gain in the fund's price.

Morningstar Disclosures:
The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

© 2016 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.