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Investment Opportunity

The fund focuses on primarily higher quality, more liquid securities across 14 fixed income sectors by applying a time-tested approach of active sector rotation, extensive credit research and disciplined risk management to capitalize on opportunities across undervalued areas of the fixed income markets. The fund invests at least 80% of its assets in fixed income debt obligations of various types of issuers. The fund's average duration will range from one to three years. The fund seeks to earn a high level of total return, including a competitive level of current income, while limiting fluctuations in net asset value due to changes in interest rates.

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.

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.

Foreign Investing: Investing internationally involves additional risks such as currency, political, accounting, economic, and market risk.

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 2/17/2017)

Inception: 7/21/1999
Ticker: HIMZX
CUSIP: 92828W346
Fund No: 1768
Net Assets by Fund: $363,283,191
Net Assets by Class: $98,263,273

Management Team

David L. Albrycht, CFA
David L. Albrycht, CFA Newfleet Asset Management, LLC

Industry start date: 1985

Start date with Fund: 2012

Benjamin Caron, CFA
Benjamin Caron, CFA Newfleet Asset Management, LLC

Industry start date: 1997

Start date with Fund: 2012

Christopher J. Kelleher, CFA
Christopher J. Kelleher, CFA Newfleet Asset Management, LLC

Industry start date: 1983

Start date with Fund: 2012

Lisa M. Baribault
Lisa M. Baribault Newfleet Asset Management, LLC

Industry start date: 2003

Start date with Fund: 2017

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 4 stars out of 453 funds, 4 stars out of 361 funds and 5 stars out of 261 funds within the Short-Term Bond 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 -0.43 0.25 2.24 1.59 2.21 3.63 4.08
POP -2.67 -2.01 -0.06 0.82 1.75 3.40 3.94
Quarterly Performance (%) (as of 12/30/2016)
  3 Mon. YTD 1YR 3YR 5YR 10YR Since Inception
NAV -0.80 2.42 2.42 1.75 2.41 3.61 4.08
POP -3.03 0.12 0.12 0.98 1.95 3.37 3.95
Index -2.07 2.08 2.08 2.09 1.85 3.84 NA

Index: Low Duration Income Linked Benchmark
The Low Duration Income Fund Linked Benchmark consists of the BofA Merrill Lynch 1-5 Year US Corporate & Government Bond Index which tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, US agency, foreign government, supranational and corporate securities, with a remaining term to final maturity less than 5 years, calculated on a total retun 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 Low Duration Income Linked Benchmark prior to 2/1/2017 is that of the Bloomberg Barclays U.S. Intermediate Government/Credit Bond Index.

Sales Charge and Expense

POP (Public Offering Price) performance reflects the deduction of the maximum sales charge of 2.25%. A contingent deferred sales charge of 0.50% may be imposed on certain redemptions within 12 months on purchases on which a finder’s fee has been paid.

The fund class gross expense ratio is 1.10%. The net expense ratio is 0.75%, which reflects a contractual expense reimbursement in effect through 01/31/2018.

Risk Statistics3 (as of 12/30/2016)

  Fund Index
R2 0.70 1.00
Beta 0.47 1.00
Alpha 0.70 0.00
Std Dev 1.24 2.23
Index: Low Duration Income Linked Benchmark

Daily Price (as of 2/17/2017)

NAV Change ($)
10.78 0.00
POP Change ($)
11.03 0.00

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

Distribution Yield (at NAV) 1.85%
SEC Yield 1.50%
SEC Yield (gross) 1.16%
Distributions Current Month $0.016570
Distributions YTD $0.016570

Distribution History2 (January 2017)

Ex-Date 01/31/2017
Income $0.016570
STCG $0.000000
LTCG $0.000000
Reinvest NAV $10.77

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

U.S. Treasury Note, 0.75% 12/31/2017 4.04
U.S. Treasury Note, 1.38% 04/30/2020 2.79
iShares iBoxx $ Investment Grade Corporate Bond ETF 1.90
FNMA, 2.5% 1.69
FNMA, 3% 1.40
UAL Pass-Through-Trust, 6.64% 07/02/2022 0.77
FNMA, 3.5% 0.70
Fannie Mae Pool, 3.50% 0.67

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

Asset Backed Securities 25.99
Corporate - High Quality 17.10
Non-Agency Residential MBS 15.75
Non-Agency Commercial MBS 12.86
Mortgage Backed Securities 10.77

(as of 12/30/2016)

Duration 2.60 years

Morningstar Ratings

Overall Rating

As of 1/31/2017 the Fund was rated 4 stars out of 453 funds, 4 stars out of 361 funds and 5 stars out of 261 funds within the Short-Term Bond 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 www.virtus.com 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.