Virtus Equity & Convertible Income Fund

An interval fund continuously offers shares at net asset value but provides liquidity only during scheduled, periodic repurchase offers — typically quarterly, for 5% to 25% of outstanding shares — rather than daily redemptions. This allows the portfolio manager to hold less-liquid assets, such as below-investment-grade convertible bonds, without the same immediate redemption-pressure constraints that a daily-dealing open-end mutual fund faces. For the Virtus Equity & Convertible Income Fund, this structure is designed to support the convertible sleeve, where bid-ask spreads can widen during volatility.

The fund divides the portfolio between a direct equity sleeve — typically large-cap, dividend-paying common stocks — and a convertible-securities sleeve that primarily holds convertible bonds of corporate issuers. The exact split is not fixed and will shift with relative valuation: when convertibles appear cheap relative to the underlying equity, the convertible allocation can rise, and when equity valuations dominate, the direct equity sleeve can increase. The dual sleeve is designed to generate current income while retaining equity-upside participation.

Virtus Investment Partners serves as the fund's sponsor and adviser. The day-to-day portfolio management is typically delegated to an external sub-adviser contracted by Virtus. The specific sub-adviser can change over time, and allocators should verify the current sub-advisory arrangement in the fund's most recent prospectus or statement of additional information, as the performance record may contain periods managed by different teams.

Because the fund only offers quarterly repurchase offers for a limited percentage of shares, shareholders may not be able to exit their full position in any single quarter if repurchase requests exceed the offer amount — requests are typically honored on a pro-rata basis. Additionally, the fund's board can suspend or postpone a repurchase offer under certain conditions. This makes the vehicle suitable only for investors who can tolerate intermittent liquidity and do not rely on the ability to redeem on demand.

The fund has the authority under its investment policies to use leverage, including borrowings and the issuance of preferred shares, to enhance income and total return. The extent of leverage used varies with the manager's outlook and market conditions. Leverage can amplify both gains and losses, and an allocator should examine the fund's most recent annual report for the current leverage ratio, cost of financing, and asset coverage levels.

Distributions may consist of net investment income — primarily interest from convertible bonds and dividends from equities — as well as capital gains and return of capital. Because convertible bonds often pay interest taxed as ordinary income, a significant portion of the fund's yield is typically taxed at the investor's marginal income-tax rate rather than at the lower qualified-dividend rate. Return-of-capital distributions are not taxable when received but reduce the shareholder's cost basis, deferring tax until the position is sold.

The fund's total expense ratio includes the management fee paid to Virtus, the sub-advisory fee, and other operating expenses related to the interval-fund structure — such as tender-offer administration costs — which can result in a higher all-in fee than a comparable daily-dealing open-end convertible fund. Allocators should consult the most recent prospectus for the exact gross and net expense ratios, and ask whether any fee waivers are in place and under what conditions they might expire.