THE STRATEGIC
STOCK FUND
Semi-Annual Report &
Supplement to Prospectus
Dated March 6, 1995
MAY 31, 1995
Funds Managed by
[LOGO]
The Investment Adviser to The Virtus Funds is
Virtus Capital Management, Inc., a subsidiary
of Signet Banking Corporation. The Virtus Funds
are administered by subsidiaries of Federated
Investors, independent of Signet.
-------------------------------------------------
l l
l Investment products offered through Signet l
l Financial Services, Inc. are not deposits, l
l obligations of, or guaranteed by Signet Bank, l
l and are not insured by FDIC or any Federal l
l agency. In addition, they involve risk, l
l including possible loss of principal l
l invested. Member NASD. l
l l
l l
l Virtus Capital Management, Inc. is the l
l investment adviser for The Virtus Funds. l
l Federated Securities Corp. is the distributor l
l of the Funds. l
l l
-------------------------------------------------
Federated Securities Corp., Distributor, is
independent of Signet Bank.
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the first Semi-Annual Report of The Strategic Stock Fund
for the reporting period ended March 31, 1995. This report provides you with
complete financial information for the fund, including an investment review by
the portfolio manager, a list of investments for the fund, and the financial
statements.
Since its offering on March 7, 1995, assets in The Strategic Stock Fund have
grown to more than $55 million. The fund paid more than $85,000 in dividends, or
$.02 per share.
Thank you for your confidence in The Strategic Stock Fund as a way to take
advantage of the investment potential of common stocks of large, medium and
small capitalization companies. We will continue to keep you informed on your
investment as we remain committed to delivering the highest level of personal
service.
Sincerely,
Edward C. Gonzales
President
May 15, 1995
INVESTMENT REVIEW
The Strategic Stock Fund
- --------------------------------------------------------------------------------
The majority of economic indicators released during the first quarter of 1995
verify that the economy has slowed down from the rapid pace of 1994. The real
question is whether the seven short-term interest rate increases over the past
year have slowed the economy enough to satisfy the Federal Reserve Board (the
"Fed") and achieve the much talked about soft landing. Many investors believe
that the Fed is through raising interest rates for the foreseeable future, as
evidenced by the strong first quarter rallies in the bond and stock markets.
We believe the economy will continue to slow down over the next several quarters
and will ease underlying inflation pressures.
Following a tough 1994 that saw the Standard & Poor's 500 return only 1.3%, the
markets have risen sharply during the first quarter of 1995. The rise during the
first three months exceeded 82% of all quarterly returns going back to 1926. The
rally has been fueled by the decline in interest rates and strong earnings
reports during the period.
Strategically, your fund is positioned among the growth segment of the stock
market. This segment tends to be less sensitive to the slowing economy, and
possesses the best expected profit growth. Our particular focus has been on
small-size, growth companies. This area appears more fundamentally attractive
than the larger issues. From July 1, 1994 through March 31, 1995, both large and
small growth-oriented companies have outperformed their value counterparts as
measured by Wilshire Associates. This reflects a reversal of the value group's
strong performance from the prior couple of years, and the slowing of profit
projections of the more economically sensitive value stocks. While the
performance of medium-size companies has not kept up with that of the larger
Standard & Poor's 500, we believe that this emphasis will ultimately prevail.
A. Please insert the following "Financial Highlights" table as page 2 following
the "Summary of Fund Expenses" and before the section "General Information."
In addition, please add the heading "Financial Highlights" to the Table of
Contents page after the heading "Summary of Fund Expenses."
THE STRATEGIC STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1995(A)
(UNAUDITED)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------------
Net investment income 0.01
- ------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.20
- ------------------------------------------------------------------------ -------
Total from investment operations 0.21
- ------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------------
Distributions from net investment income (0.01)
- ------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)
- ------------------------------------------------------------------------ -------
Total Distributions (0.02)
- ------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 10.19
- ------------------------------------------------------------------------ -------
TOTAL RETURN (B) 2.06%
- ------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------------
Expenses 0.56%(c)
- ------------------------------------------------------------------------
Net investment income 0.56%(c)
- ------------------------------------------------------------------------
Expense waiver/reimbursement (d) 1.00%(c)
- ------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------------
Net assets, end of period (000 omitted) $55,368
- ------------------------------------------------------------------------
Portfolio Turnover 2%
- ------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from March 7, 1995 (date of initial
public investment) to March 31, 1995.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
B. Please delete the fifth sentence of the second paragraph under the subsection
entitled "Share Purchases" on page 8 of the prospectus, and insert the
following.
"Payment must be received for shares purchased through Signet Financial
Services, Inc. within three days of placing the order."
C. Please insert the following at the end of the first paragraph under the
heading "Voting Rights" on page 12 of the prospectus.
"As of May 9, 1995, Bova & Co, Richmond, Virginia, owned approximately 5,593,427
shares (98.56%) of the Fund, and therefore, may for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders."
D. Please insert the financial statements immediately following the section
entitled "Performance Information" on page 14 of the prospectus. In addition,
please add the heading "Financial Statements" to the Table of Contents page
immediately before the heading "Addresses."
THE STRATEGIC STOCK FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -------------------------------------------------------------------- -----------
COMMON STOCKS--95.5%
- ----------------------------------------------------------------------------------
<C> <S> <C>
COMMERCIAL SERVICES--0.7%
--------------------------------------------------------------------
10,600 USA Waste Services, Inc. $ 125,875
--------------------------------------------------------------------
26,500 Weatherford International 278,250
-------------------------------------------------------------------- -----------
Total 404,125
-------------------------------------------------------------------- -----------
CONSUMER DURABLES--7.7%
--------------------------------------------------------------------
15,523 Betz Laboratories, Inc. 679,131
--------------------------------------------------------------------
33,300 Cincinnati Milacron, Inc. 761,737
--------------------------------------------------------------------
12,500 Dallas Semiconductor Corp. 229,688
--------------------------------------------------------------------
18,200 Fastenal Co. 448,175
--------------------------------------------------------------------
10,050 Idex Corp. 300,244
--------------------------------------------------------------------
12,300 Jacobs Engineer Group, Inc. 241,388
--------------------------------------------------------------------
35,800 Lennar Corp. 577,275
--------------------------------------------------------------------
11,200 Oakwood Homes Corp. 295,400
--------------------------------------------------------------------
20,900 United Dominion Industries Ltd. 389,263
--------------------------------------------------------------------
10,600 Wabash National Corp. 347,150
-------------------------------------------------------------------- -----------
Total 4,269,451
-------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--23.1%
--------------------------------------------------------------------
21,400 Acclaim Entertainment, Inc. 371,825
--------------------------------------------------------------------
17,300 Arctco, Inc. 259,500
--------------------------------------------------------------------
23,326 Brown-Forman Corp. 778,505
--------------------------------------------------------------------
15,100 Buffets, Inc. 143,450
--------------------------------------------------------------------
8,100 Caldor Corp. 173,138
--------------------------------------------------------------------
16,622 Campbell Soup Co. 804,089
--------------------------------------------------------------------
7,950 General Mills, Inc. 474,019
--------------------------------------------------------------------
20,105 Genuine Parts Co. 801,687
--------------------------------------------------------------------
18,879 Heinz (H.J.), Co. 726,841
--------------------------------------------------------------------
14,819 Hershey Foods Corp. 757,621
--------------------------------------------------------------------
300 IHOP Corp. 8,831
--------------------------------------------------------------------
8,300 Johnson & Johnson 493,850
--------------------------------------------------------------------
14,000 Jones Apparel Group, Inc. 378,000
--------------------------------------------------------------------
</TABLE>
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -------------------------------------------------------------------- -----------
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER NON-DURABLES--CONTINUED
--------------------------------------------------------------------
12,009 Kellogg Co. $ 701,025
--------------------------------------------------------------------
17,200 Lands End, Inc. 301,000
--------------------------------------------------------------------
14,300 Mac Frugals Bargains Close-Outs, Inc. 205,563
--------------------------------------------------------------------
6,400 Nautica Enterprises, Inc. 200,000
--------------------------------------------------------------------
12,201 Philip Morris Companies, Inc. 796,115
--------------------------------------------------------------------
11,482 Procter & Gamble Co. 760,682
--------------------------------------------------------------------
22,394 Quaker Oats Co. 741,801
--------------------------------------------------------------------
15,340 Readers Digest Association, Inc. 738,237
--------------------------------------------------------------------
18,300 Sara Lee Corp. 478,088
--------------------------------------------------------------------
22,416 Sherwin-Williams Co. 759,342
--------------------------------------------------------------------
8,700 Smithfield Foods, Inc. 213,150
--------------------------------------------------------------------
15,000 Superior Industries International, Inc. 382,500
--------------------------------------------------------------------
4,900 United Television, Inc. 301,350
-------------------------------------------------------------------- -----------
Total 12,750,209
-------------------------------------------------------------------- -----------
CONSUMER SERVICES--19.8%
--------------------------------------------------------------------
21,905 Abbott Laboratories 780,366
--------------------------------------------------------------------
11,000 Arrow International, Inc. 387,750
--------------------------------------------------------------------
20,969 Bausch & Lomb, Inc. 749,642
--------------------------------------------------------------------
7,600 Colgate-Palmolive Co. 501,600
--------------------------------------------------------------------
9,500 Community Health System, Inc. 299,250
--------------------------------------------------------------------
18,800 Continental Medical System, Inc. 145,700
--------------------------------------------------------------------
16,300 FHP International Corp. 480,850
--------------------------------------------------------------------
14,589 General Electric Co. 789,630
--------------------------------------------------------------------
7,500 Genesis Health Ventures, Inc. 234,375
--------------------------------------------------------------------
15,800 Health Care & Retirement Corp. 497,700
--------------------------------------------------------------------
16,800 Healthcare Compare Corp. 558,600
--------------------------------------------------------------------
15,300 Healthsource, Inc. 724,837
--------------------------------------------------------------------
14,600 Herbalife International, Inc. 197,100
--------------------------------------------------------------------
9,600 Integrated Health Services, Inc. 363,600
--------------------------------------------------------------------
32,199 Marion Merrell Dow, Inc. 796,925
--------------------------------------------------------------------
18,734 Merck & Co., Inc. 798,537
--------------------------------------------------------------------
8,700 Nellcor, Inc. 331,688
--------------------------------------------------------------------
1,000 Nelson Thomas, Inc. 19,750
--------------------------------------------------------------------
7,600 Quantum Health Resource, Inc. 157,700
--------------------------------------------------------------------
9,470 Schering-Plough Corp. 704,331
--------------------------------------------------------------------
</TABLE>
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -------------------------------------------------------------------- -----------
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <S> <C>
CONSUMER SERVICES--CONTINUED
--------------------------------------------------------------------
9,100 Sunrise Medical, Inc. $ 325,325
--------------------------------------------------------------------
22,722 Upjohn Co. 812,312
--------------------------------------------------------------------
8,200 Vencor, Inc. 292,125
-------------------------------------------------------------------- -----------
Total 10,949,693
-------------------------------------------------------------------- -----------
ENERGY MINERALS--2.0%
--------------------------------------------------------------------
32,000 California Energy, Inc. 512,000
--------------------------------------------------------------------
34,700 Nabors Industries, Inc. 260,250
--------------------------------------------------------------------
17,700 Seagull Energy Corp. 349,575
-------------------------------------------------------------------- -----------
Total 1,121,825
-------------------------------------------------------------------- -----------
FINANCE--6.3%
--------------------------------------------------------------------
19,200 American Annuity Group, Inc. 189,600
--------------------------------------------------------------------
1,900 Commercial Federal Corp. 47,144
--------------------------------------------------------------------
373 Equitable Companies, Inc. 8,206
--------------------------------------------------------------------
9,982 Federal National Mortgage Association 812,285
--------------------------------------------------------------------
12,000 Glenayre Technologies, Inc. 546,000
--------------------------------------------------------------------
400 Money Store, Inc. 10,050
--------------------------------------------------------------------
12,200 Pioneer Group, Inc. 253,150
--------------------------------------------------------------------
13,500 Pulte Corp. 317,250
--------------------------------------------------------------------
14,600 T. Rowe Price & Assoc., Inc. 531,075
--------------------------------------------------------------------
21,593 Wachovia Corp. 766,552
-------------------------------------------------------------------- -----------
Total 3,481,312
-------------------------------------------------------------------- -----------
MISCELLANEOUS--2.5%
--------------------------------------------------------------------
6,300 Homedco Group, Inc. 344,925
--------------------------------------------------------------------
11,100 Horizon Healthcare Corp. 296,925
--------------------------------------------------------------------
6,200 Sierra Health Services, Inc. 203,825
--------------------------------------------------------------------
31,700 Total System Services, Inc. 515,125
-------------------------------------------------------------------- -----------
Total 1,360,800
-------------------------------------------------------------------- -----------
TECHNOLOGY SERVICES--28.0%
--------------------------------------------------------------------
25,600 Adaptec, Inc. 844,800
--------------------------------------------------------------------
14,500 Allen Group, Inc. 358,875
--------------------------------------------------------------------
10,100 Altera Corp. 564,337
--------------------------------------------------------------------
12,150 American Management System, Inc. 235,406
--------------------------------------------------------------------
18,750 Andrew Corp. 764,062
--------------------------------------------------------------------
5,000 Aspect Telecommunications Corp. 183,750
--------------------------------------------------------------------
17,800 Augat, Inc. 327,075
--------------------------------------------------------------------
</TABLE>
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- -------------------------------------------------------------------- -----------
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
<C> <S> <C>
TECHNOLOGY SERVICES--CONTINUED
--------------------------------------------------------------------
16,400 Breed Technologies, Inc. $ 358,750
--------------------------------------------------------------------
12,000 California Microwave 300,000
--------------------------------------------------------------------
19,500 Cheyenne Software, Inc. 277,875
--------------------------------------------------------------------
27,900 Cirrus Logic, Inc. 948,600
--------------------------------------------------------------------
16,600 Clear Channel Communications, Inc. 987,700
--------------------------------------------------------------------
8,500 Cognex Corp. 244,375
--------------------------------------------------------------------
16,679 Compaq Computer Corp. 575,425
--------------------------------------------------------------------
7,800 Concord EFS, Inc. 214,500
--------------------------------------------------------------------
13,600 Dentsply International, Inc. 472,600
--------------------------------------------------------------------
1,500 Digi International, Inc. 33,000
--------------------------------------------------------------------
24,600 Electronic Arts 556,575
--------------------------------------------------------------------
11,200 Exabyte Corp. 193,200
--------------------------------------------------------------------
2,400 Fair Issac & Co., Inc. 115,200
--------------------------------------------------------------------
19,500 FIserv, Inc. 516,750
--------------------------------------------------------------------
7,000 Gentex Corp. 147,000
--------------------------------------------------------------------
8,400 Harman International Industries, Inc. 311,850
--------------------------------------------------------------------
16,700 Input/Output, Inc. 440,463
--------------------------------------------------------------------
500 Kent Electors Corp. 14,750
--------------------------------------------------------------------
9,400 Marshall Industries 244,400
--------------------------------------------------------------------
2,000 Micros System, Inc. 63,000
--------------------------------------------------------------------
8,500 Oak Industries, Inc. 218,875
--------------------------------------------------------------------
11,400 Park Communications, Inc. 343,425
--------------------------------------------------------------------
14,700 Paychex, Inc. 676,200
--------------------------------------------------------------------
21,787 Pitney Bowes, Inc. 784,332
--------------------------------------------------------------------
5,800 Standard Microsystems Corp. 94,250
--------------------------------------------------------------------
9,700 Sun Guard Data Systems 446,200
--------------------------------------------------------------------
46,000 Tech Data Corp. 471,500
--------------------------------------------------------------------
1,400 Three Five System, Inc. 36,750
--------------------------------------------------------------------
5,800 U.S. Robotics Corp. 362,500
--------------------------------------------------------------------
12,600 Verifone, Inc. 308,700
--------------------------------------------------------------------
11,400 Vicor Corp. 387,600
--------------------------------------------------------------------
11,200 Xilinx, Inc. 758,800
--------------------------------------------------------------------
9,200 Zilog, Inc. 328,900
-------------------------------------------------------------------- -----------
Total 15,512,350
-------------------------------------------------------------------- -----------
</TABLE>
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------ -----------
<C> <S> <C>
COMMON STOCK--CONTINUED
- --------------------------------------------------------------------------------
TRANSPORTATION--5.4%
------------------------------------------------------------------
10,200 Air Express International Corp. $ 260,100
------------------------------------------------------------------
15,700 American Freightways Corp. 357,175
------------------------------------------------------------------
9,900 Comair Holdings, Inc. 170,775
------------------------------------------------------------------
1,200 Expeditores International Washington, Inc. 25,200
------------------------------------------------------------------
6,300 Fritz Companies, Inc. 404,775
------------------------------------------------------------------
14,348 Roadway Services, Inc. 692,291
------------------------------------------------------------------
13,600 Werner Enterprises, Inc. 272,000
------------------------------------------------------------------
17,300 Wisconsin Central Transportation Corp. 823,913
------------------------------------------------------------------ -----------
Total 3,006,229
------------------------------------------------------------------ -----------
TOTAL COMMON STOCKS (IDENTIFIED COST $51,832,214) 52,855,994
------------------------------------------------------------------ -----------
FOREIGN COMMON STOCK--0.2%
- --------------------------------------------------------------------------------
MISCELLANEOUS--0.2%
------------------------------------------------------------------
6,200 Adia Services, Inc.--ADR (IDENTIFIED COST $144,925) 138,725
------------------------------------------------------------------ -----------
*REPURCHASE AGREEMENT--3.8%
- --------------------------------------------------------------------------------
$2,100,822 Prudential Securities, Inc., 6.05%, dated 3/31/1995, due 4/3/1995
(at amortized cost) 2,100,822
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST $54,077,961) $55,095,541+
------------------------------------------------------------------ -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $54,077,961. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,017,580, which is comprised of $1,951,418 appreciation and $933,838
depreciation at March 31, 1995.
* The repurchase agreement is fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
ADR -- American Depositary Receipts
Note: The categories of investments are shown as a percentage of net assets
($55,368,297) at March 31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STRATEGIC STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $54,077,961) $55,095,541
- -------------------------------------------------------------------------------
Income receivable 37,469
- -------------------------------------------------------------------------------
Receivable for shares sold 245,924
- ------------------------------------------------------------------------------- -----------
Total assets 55,378,934
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Accrued expenses 10,637
- ------------------------------------------------------------------------------- -----------
NET ASSETS for 5,435,222 shares outstanding $55,368,297
- ------------------------------------------------------------------------------- -----------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid-in capital $54,376,329
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,017,580
- -------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 39,533
- -------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (65,145)
- ------------------------------------------------------------------------------- -----------
Total Net Assets $55,368,297
- ------------------------------------------------------------------------------- -----------
NET ASSET VALUE and Offering Price Per Share:
($55,368,297 / 5,435,222 shares outstanding) $10.19
- ------------------------------------------------------------------------------- -----------
Redemption Proceeds Per Share (98/100 of $10.19)* $9.99
- ------------------------------------------------------------------------------- -----------
</TABLE>
* See "Redeeming Shares" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
THE STRATEGIC STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED MARCH 31, 1995*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 3,633
- ---------------------------------------------------------------------------------
Dividends 37,116
- --------------------------------------------------------------------------------- ----------
Total income 40,749
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $35,469
- ------------------------------------------------------------------------
Administrative personnel and services fee 9,863
- ------------------------------------------------------------------------
Custodian fees 4,000
- ------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 687
- ------------------------------------------------------------------------
Trustees fees 282
- ------------------------------------------------------------------------
Legal fees 620
- ------------------------------------------------------------------------
Portfolio accounting fees 3,228
- ------------------------------------------------------------------------
Printing and postage 1,239
- ------------------------------------------------------------------------
Insurance premiums 468
- ------------------------------------------------------------------------
Miscellaneous 113
- ------------------------------------------------------------------------ -------
Total expenses 55,969
- ------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 35,469
- ------------------------------------------------------------------------ -------
Net expenses 20,500
- --------------------------------------------------------------------------------- ----------
Net investment income 20,249
- --------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 39,533
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 1,017,580
- --------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 1,057,113
- --------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,077,362
- --------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from March 7, 1995 (date of initial public investment) to March
31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STRATEGIC STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1995*
(UNAUDITED)
----------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 20,249
- ------------------------------------------------------------------------
Net realized gain on investments
($39,533 net gain, as computed for federal tax purposes) 39,533
- ------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,017,580
- ------------------------------------------------------------------------ --------------
Change in net assets resulting from operations 1,077,362
- ------------------------------------------------------------------------ --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
Distributions from net investment income 20,249
- ------------------------------------------------------------------------
Distributions in excess of net investment income (65,145)
- ------------------------------------------------------------------------ --------------
Total Distributions (85,394)
- ------------------------------------------------------------------------ --------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------
Proceeds from sale of shares 54,290,935
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 85,394
- ------------------------------------------------------------------------
Cost of shares redeemed --
- ------------------------------------------------------------------------ --------------
Change in net assets resulting from share transactions 54,376,329
- ------------------------------------------------------------------------ --------------
Change in net assets 55,368,297
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period --
- ------------------------------------------------------------------------ --------------
End of period $ 55,368,297
- ------------------------------------------------------------------------ --------------
</TABLE>
* For the period from March 7, 1995 (date of initial public investment) to March
31, 1995.
(See Notes which are an integral part of the Financial Statements)
THE STRATEGIC STOCK FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Virtus Funds (the "Trust") is registered under the Investment Company Act of
1940, as amended (the "Act") as an open-end management investment company. The
Trust consists of eight portfolios. The financial statements presented herein
present only those of The Strategic Stock Fund (the "Fund"), a diversified
portfolio of the Trust. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price
reported on national securities exchanges. Unlisted securities and short-term
securities are generally valued at the prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair market value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require a custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System, or to
have segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been established
by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Fund's adviser
to be creditworthy pursuant to the guidelines and/or standards reviewed or established
by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the terms of
the repurchase agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as required by
the Internal Revenue Code, as amended (the "Code").
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each
year substantially all of its income. Accordingly, no provisions for federal tax are
necessary. However, federal taxes may be imposed on the Fund upon the disposition of
certain investments in passive foreign investment companies. Withholding taxes on
foreign dividends have been provided for in accordance with the Fund's understanding of
the applicable country's tax rules and rates.
</TABLE>
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade
date and maintains security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities purchased on a
when-issued or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1995*
-----------------
<S> <C>
- -----------------------------------------------------------------------
Shares sold 5,426,850
- -----------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 8,372
- -----------------------------------------------------------------------
Shares redeemed --
- ----------------------------------------------------------------------- --------------
Net change resulting from share transactions 5,435,222
- ----------------------------------------------------------------------- --------------
</TABLE>
* For the period from March 7, 1995 (date of initial public investment) to March
31, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Virtus Capital Management, Inc., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive all or a portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES, PORTFOLIO ACCOUNTING
AND CUSTODIAN FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Fund for which it receives a fee. The fee is
based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period
plus, out-of-pocket expenses.
Signet Trust Co. is the Fund's custodian for which it receives a fee. The fee is
based on the level of the Fund's average net assets for the period plus,
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses will be borne initially by FAS
and are estimated to be $35,000.
The Fund has agreed to reimburse FAS for the organizational expenses during the
five year period following March 6, 1995 (the date the Fund became effective).
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
THE STRATEGIC STOCK FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $53,067,095
- ------------------------------------------------------------------------------- -----------
SALES $ 1,129,490
- ------------------------------------------------------------------------------- -----------
</TABLE>
(6) CONCENTRATION OF CREDIT RISK
The Fund invests in equity securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse effect on
the ability of domiciled issuers to meet their obligations. Additionally,
political or economic developments may have an effect on the liquidity and
volatility of portfolio securities and currency holdings.
At March 31, 1995, the portfolio was diversified within the following countries:
<TABLE>
<CAPTION>
COUNTRY % OF PORTFOLIO
----------------------------- -----------------------------
<S> <C>
Switzerland 0.2%
</TABLE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
927913806
G00716-02 (5/95)
THE STRATEGIC STOCK FUND
(A PORTFOLIO OF THE VIRTUS FUNDS)
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 6, 1995
A. Please insert the following information as a second paragraph
under the section entitled "Fund Ownership" on page 10 of the
Statement of Additional Information:
"As of May 9, 1995, the following shareholder of record
owned 5% or more of the outstanding shares of the Fund:
Bova & Co., Richmond, Virginia, owned approximately
5,593,927 shares (98.56%)."
B. Please insert the following sub-section immediately after the sub-
section entitled "Adviser to the Fund" under the main section
entitled "Investment Advisory Services" on page 10 of the
Statement of Additional Information:
"Advisory Fees
For its advisory services, Virtus Capital Management Inc.
receives an annual investment advisory fee as described in
the prospectus.
From the Fund's effective date, March 6, 1995 to March 31,
1995, the Fund's adviser earned $35,469, all of which was
voluntarily waived."
C. Please insert the following information after the first sentence
under the section entitled "Administrative Services" on page 11 of
the Statement of Additional Information:
"From the Fund's effective date, March 6, 1995, to March 31,
1995, the fund incurred costs for administrative services of
$9,863."
D. Please insert the following information at the end of the section
entitled "Brokerage Transactions" on page 11 of the Statement of
Additional Information:
"For the period from March 7, 1995 (date of initial public
investment), to March 31, 1995, the Fund paid $2,015 in
brokerage commissions on brokerage transactions."
E. Please insert the following information as a final paragraph under
the sub-section entitled "Distribution Plan" on page 12 of the
Statement of Additional Information:
"From the Fund's effective date, March 6, 1995, to March 31,
1995, brokers and administrators (financial institutions)
received fees in the amount of $0, pursuant to the
Distribution Plan."
F. Please insert the following information as a final paragraph under
the section entitled "Total Return" on page 13 of the Statement of
Additional Information:
"The Fund's cumulative total return from March 6, 1995
(Fund's start of performance date), to March 31, 1995 was
2.06%. Cumulative total return reflects the Fund's total
performance over a specific period of time. The Fund's total
return is representative of only 1 month of fund activity
since the Fund's start of performance date."
May 31, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated
Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
927913806
G00564-11 (5/95)
