THE VIRGINIA MUNICIPAL BOND FUND AND
THE MARYLAND MUNICIPAL BOND FUND
(Portfolios of The Virtus Funds)
SUPPLEMENT TO THE TRUST SHARES COMBINED PROSPECTUS DATED NOVEMBER 30, 1996
AND THE INVESTMENT SHARES COMBINED PROSPECTUS DATED NOVEMBER 30, 1995,
REVISED DECEMBER 29, 1995 AND MARCH 15, 1996.
1. PLEASE REPLACE THE SECTION ENTITLED `FINANCIAL FUTURES AND OPTIONS ON
FUTURES'' ON PAGE 23 OF THE PROSPECTUSES, WITH THE FOLLOWING:
FUTURES AND OPTIONS ON FUTURES. The Style Manager: Large Cap Fund, The
Style Manager Fund, The Virginia Municipal Bond Fund and The Maryland
Municipal Bond Fund may purchase and sell futures contracts to hedge all or
a portion of their portfolios against changes in interest rates and market
conditions. Financial Futures contracts call for the delivery of particular
debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in
the contract and the buyer agrees to take delivery of the instrument at the
specified future time.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement to which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of
the index at the close of the last trading day of the contract and the
price at which the index contract was originally written.
The Style Manager: Large Cap Fund, The Style Manager Fund, The Virginia
Municipal Bond Fund and The Maryland Municipal Bond Fund may also write
call options and purchase put options on futures contracts as a hedge to
attempt to protect securities in its portfolio against decreases in value.
When a Fund writes a call option on a futures contract, it is undertaking
the obligation of selling a futures contract at a fixed price at any time
during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, a Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
A fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. When a Fund
purchases futures contracts, an amount of cash and cash equivalents, equal
to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with
the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contracts is
unleveraged.
RISKS. When a Fund uses financial futures and options on financial
future as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly
with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the
Fund's investment adviser could be incorrect in its expectations about
the direction or extent of market factors such as stock price
movements. In these events, the Fund may lose money on the futures
contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into options
transactions, there is no assurance that a liquid secondary market on
an exchange or otherwise will exist for any particular futures contract
or option at any particular time. A Fund's ability to establish and
close out futures and options positions depends on this secondary
market.
2. PLEASE DELETE THE HEADING ENTITLED `FUTURES CONTRACTS AND OPTIONS TO
BUY OR SELL SUCH CONTRACTS'', AND THE FIRST
PARAGRAPH BENEATH SUCH HEADING, FROM PAGE 23 OF THE INVESTMENT SHARES
COMBINED PROSPECTUS.
3. PLEASE DELETE THE HEADING ENTITLED `FUTURES CONTRACTS AND OPTIONS TO
BUY OR SELL SUCH CONTRACTS--THE
VIRGINIA MUNICIPAL BOND FUND AND THE MARYLAND MUNICIPAL BOND FUND'', AND
THE FIRST PARAGRAPH BENEATH SUCH HEADING, FROM PAGE 23 OF THE TRUST
SHARES COMBINED PROSPECTUS.
August 15, 1996
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
(2153)
Cusip 927913806
G01817-01 (8/96)
