Sullivan & Worcester LLP T 202 775 1200
1666 K Street NW F 202 293 2275
Washington, DC 20006 www.sandw.com
January 20, 2010
VIA EDGAR
EDGAR Operations Branch
Division of Investment Management
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Virtus Equity Trust
(Virtus Strategic Growth Fund)
CIK 0000034273
(File No. 333-163916)
Ladies and Gentlemen:
This letter sets forth responses to oral comments received from Brion
Thompson of the staff of the Securities and Exchange Commission (the "SEC") on
January 14, 2010 and January 20, 2010, with respect to the registration
statement on Form N-14 that was filed by Virtus Equity Trust (the "Trust") on
December 22, 2009, relating to the reorganization of Virtus Capital Growth Fund,
a series of the Trust, into Virtus Strategic Growth Fund, another series of the
Trust. Where noted, changes, as applicable, have been made to the
prospectus/information statement. Revised pages of the foregoing documents are
attached.
Set forth below is each comment and the Fund's response thereto.
1. Comment: Please confirm that the Registrant is relying on Rule 17a-8 in
connection with the statement, at the bottom of page 6, that no
shareholder approval is required for this transaction.
Response: We confirm that the Registrant is relying on Rule 17a-8 in
determining that shareholder approval is not required for this fund
merger.
2. Comment: Please explain the reasons for keeping the smaller fund as the
legal and accounting survivor consistent with the factors delineated in
the North American Security Trust no-action letter.
Response: The North American letter sets forth the following factors
that should be analyzed when determining an accounting survivor: Funds
should compare the attributes of the surviving fund and the
predecessor fund to determine if the surviving fund closely resembles
the predecessor. Funds should compare the investment advisers,
investment objectives, policies and restrictions; expense structure
and expense ratios; asset size and portfolio composition.
The investment adviser for the Funds is identical. The subadviser for
the surviving fund will remain the same as currently for the Strategic
Growth Fund. The Funds' investment objectives and policies are
substantially identical and the Funds' restrictions are substantially
similar. As to portfolio composition, since the surviving fund will
continue to be managed by SCM Advisors, LLC, it is the existing
Strategic Growth Fund that most closely resembles the surviving fund
following the merger. The surviving fund's expense structure is
identical to that of both Funds, and the expense ratios of the combined
fund are expected to be slightly lower than those currently for the
Strategic Growth Fund. The subadviser and portfolio manager have
managed Strategic Growth Fund since 2005 while Capital Growth Fund has
changed subadvisers more recently; therefore, the performance of
Strategic Growth Fund more accurately reflects the true performance of
the subadviser using the investment strategy to be applied to the
combined fund. Given these factors, we believe that Strategic Growth
Fund is the appropriate surviving fund, its smaller asset size
notwithstanding.
3. Comment: In the Expense Examples on page 10, the staff calculates
some of the expenses as follows:
------------------------------------------------ ------------ ------------ ------------- -------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------ ------------ ------------ ------------- -------------
------------------------------------------------ ------------ ------------ ------------- -------------
Strategic Growth Class A $ 720 $ 1,025 $ 1,351 $ 2,273
------------------------------------------------ ------------ ------------ ------------- -------------
------------------------------------------------ ------------ ------------ ------------- -------------
Strategic Growth Pro Forma Class A $ 1,016 $ 1,336 $ 2,242
------------------------------------------------ ------------ ------------ ------------- -------------
------------------------------------------------ ------------ ------------ ------------- -------------
Strategic Growth Pro Forma Class B $ 2,376
------------------------------------------------ ------------ ------------ ------------- -------------
Response: The expense examples have been modified to reflect the
amounts as calculated by the staff.
4. Comment: The disclosure in the footnotes on page 10 states that the
deferred sales charge for both Class B and Class C shares is imposed if
an investment is redeemed before the end of the first year. However,
the examples appear to show the imposition of the deferred sales charge
during the second year. Please either correct the disclosure or the
example for consistency.
Response: Additional information has been added to the disclosures in
the footnotes to clarify the calculation of the time periods for which
the deferred sales charges will be imposed.
5. Comment: In the section "What will be the primary federal tax
consequences of the Reorganization?" - please describe that there may
be the possibility of the loss of capital loss carryover.
Response: Language has been revised on page 19 to clarify the
possibility of the loss of the capital loss carryovers.
6. Comment: In the capitalization table on page 20, explain the share
adjustment column with a footnote.
Response: Requested information has been added as footnote to the
table.
7. Comment: Add Tandy disclosures.
Response: The requested language is set forth below.
The Fund acknowledges that:
1) it is responsible for the adequacy and accuracy of the disclosure
in its filing of the above-referenced registration statement;
2) staff comments or changes to disclose in response to staff
comments in the filings reviewed by the staff do not foreclose
the Securities and Exchange Commission from taking any action
with respect to the filing; and
3) the Fund may not assert staff comments as a defense in any
proceeding initiated by the Securities and Exchange Commission or
any person under the federal securities laws of the United
States.
Any questions or comments with respect to this filing may be directed to
the undersigned at (202) 775-1227.
Very truly yours,
/s/ Arie Heijkoop, Jr.
Arie Heijkoop, Jr.
Enclosures
cc: Kevin J. Carr, Esq.
Robert N. Hickey, Esq.
Shareholder Fees (fees paid directly from your investment)
----------------------------------------------------------
----------------------------- --------------------- --------------------- ----------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Class A Class A Class A
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) 5.75% 5.75% 5.75%
Imposed on a Purchase (as a
percentage of offering
price)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Deferred Sales None(1) None(1) None(1)
Charge (Load) (as a
percentage of the lesser of
the value redeemed or the
amount invested)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) None None None
Imposed on Reinvested
Dividends
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Redemption Fee None None None
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Exchange Fee None None None
----------------------------- --------------------- --------------------- ----------------------
(1) A contingent deferred sales charge of 1% may apply on certain
redemptions made within one year following purchases on which a
finder's fee has been paid. The one-year period begins on the last
day of the month preceding the month in which the purchase was
made.
Fees and Expenses (expenses that you pay each year
as a percentage of the value of your investment)
------------------------------------------------
-------------------------------- -------------------- -------------------- --------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
-------------------------------- -------------------- -------------------- --------------------
-------------------------------- -------------------- -------------------- --------------------
Class A Class A Class A
-------------------------------- -------------------- -------------------- --------------------
-------------------------------- -------------------- -------------------- --------------------
Management Fees 0.70% 0.70% 0.70%
-------------------------------- -------------------- -------------------- --------------------
-------------------------------- -------------------- -------------------- --------------------
Distribution and Shareholder 0.25% 0.25% 0.25%
Servicing (12b-1) Fees(4)
-------------------------------- -------------------- -------------------- --------------------
-------------------------------- -------------------- -------------------- --------------------
Other Expenses 0.53% 0.56% 0.53%
-------------------------------- -------------------- -------------------- --------------------
-------------------------------- -------------------- -------------------- --------------------
Total Annual Fund Operating 1.48% 1.51% 1.48%
Expenses
-------------------------------- -------------------- -------------------- --------------------
Shareholder Fees (fees paid directly from your investment)
----------------------------------------------------------
----------------------------- --------------------- --------------------- ----------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Class B Class B Class B
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) None None None
Imposed on a Purchase (as a
percentage of offering
price)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Deferred Sales 5.00%(2) 5.00%(2) 5.00%(2)
Charge (Load) (as a
percentage of the lesser of
the value redeemed or the
amount invested)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) None None None
Imposed on Reinvested
Dividends
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Redemption Fee None None None
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Exchange Fee None None None
----------------------------- --------------------- --------------------- ----------------------
(2) The maximum deferred sales charge is imposed on Class B Shares redeemed
during the first year; thereafter, it decreases 1% annually to 2% during
the fourth and fifth years and to 0% after the fifth year. For purposes of
calculating the time period held, Class B Shares are considered purchased
on the last day of the previous month.
Fees and Expenses (expenses that you pay each year
as a percentage of the value of your investment)
------------------------------------------------
--------------------------------- ------------------- ------------------- ---------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Class B Class B Class B
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Management Fees 0.70% 0.70% 0.70%
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Distribution and Shareholder 1.00% 1.00% 1.00%
Servicing (12b-1) Fees(4)
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Other Expenses 0.53% 0.56% 0.53%
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Total Annual Fund Operating 2.23% 2.26% 2.23%
Expenses
--------------------------------- ------------------- ------------------- ---------------------
Shareholder Fees (fees paid directly from your investment)
----------------------------------------------------------
----------------------------- --------------------- --------------------- ----------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Class C Class C Class C
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) None None None
Imposed on a Purchase (as a
percentage of offering
price)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Deferred Sales 1.00%(3) 1.00%(3) 1.00%(3)
Charge (Load) (as a
percentage of the lesser of
the value redeemed or the
amount invested)
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Maximum Sales Charge (Load) None None None
Imposed on Reinvested
Dividends
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Redemption Fee None None None
----------------------------- --------------------- --------------------- ----------------------
----------------------------- --------------------- --------------------- ----------------------
Exchange Fee None None None
----------------------------- --------------------- --------------------- ----------------------
(3) The deferred sales charge is imposed on Class C Shares redeemed during the
first year only. For purposes of calculating the time period held, Class C
Shares are considered purchased on the trade date.
Fees and Expenses (expenses that you pay each year
as a percentage of the value of your investment)
------------------------------------------------
--------------------------------- ------------------- ------------------- ---------------------
Strategic Growth
Capital Growth Strategic Growth (Pro Forma)
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Class C Class C Class C
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Management Fees 0.70% 0.70% 0.70%
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Distribution and Shareholder 1.00% 1.00% 1.00%
Servicing (12b-1) Fees(4)
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Other Expenses 0.53% 0.56% 0.53%
--------------------------------- ------------------- ------------------- ---------------------
--------------------------------- ------------------- ------------------- ---------------------
Total Annual Fund Operating 2.23% 2.26% 2.23%
Expenses
--------------------------------- ------------------- ------------------- ---------------------
(4) Distribution and Shareholder Servicing (12b-1) Fees represent an
asset-based sales charge that, for a long-term shareholder, over time may
be higher than the maximum front-end sales charge permitted by the FINRA.
The tables below show examples that are intended to help you compare
the cost of investing in the Funds and Strategic Growth Pro Forma, assuming the
Reorganization takes place. The examples assume that you invest $10,000 in the
Funds for the one-, three-, five- and ten-year periods as indicated. They show
your costs if you sold your shares at the end of the period or continued to hold
them. The examples also assume that your investment has a 5% return each year
and that each Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
Examples of Fund Expenses
---------------------------------- ---------------------------------------------------------------------------------
Class A
One Year Three Years Five Years Ten Years
Capital Growth $717 $1,015 $1,335 $2,238
Strategic Growth $720 $1,025 $1,351 $2,273
Strategic Growth (Pro Forma) $717 $1,016 $1,336 $2,242
---------------------------------- ------------------- -------------------- ------------------- --------------------
---------------------------------- ---------------------------------------------------------------------------------
Class B
One Year Three Years Five Years Ten Years
Capital Growth $626 $897 $1,195 $2,375
Strategic Growth $629 $906 $1,210 $2,406
Strategic Growth (Pro Forma) $626 $897 $1,195 $2,376
---------------------------------- ------------------- -------------------- ------------------- --------------------
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368 of the Code. As a
condition to the closing of the Reorganization, Capital Growth and Strategic
Growth will receive an opinion from the law firm of McDermott Will & Emery LLP
to the effect that, based upon certain facts, assumptions, and representations,
the Reorganization contemplated by the Plan will, for federal income tax
purposes, qualify as a tax-free reorganization described in section 368(a) of
the Code, and that Capital Growth and Strategic Growth each will be a "party to
a reorganization," within the meaning of section 368(b) of the Code.
As a result:
1. No gain or loss will be recognized by Strategic Growth upon the
receipt of the assets of Capital Growth solely in exchange for the
shares of Strategic Growth and the assumption by Strategic Growth
of the liabilities of Capital Growth;
2. No gain or loss will be recognized by Capital Growth on the
transfer of its assets to Strategic Growth in exchange for
Strategic Growth's shares and the assumption by Strategic Growth
of the liabilities of Capital Growth or upon the distribution of
Strategic Growth's shares to Capital Growth's shareholders in
exchange for their shares of Capital Growth;
3. No gain or loss will be recognized by Capital Growth's
shareholders upon the exchange of their shares of Capital Growth
for shares of Strategic Growth in liquidation of Capital Growth;
4. The aggregate tax basis of the shares of Strategic Growth received
by each shareholder of Capital Growth pursuant to the
Reorganization will be the same as the aggregate tax basis of the
shares of Capital Growth held by such shareholder immediately
prior to the Reorganization, and the holding period of the shares
of Strategic Growth received by each shareholder of Capital Growth
will include the period during which the shares of Capital Growth
exchanged therefor were held by such shareholder (provided that
the shares of Capital Growth are held as capital assets on the
date of the Reorganization); and
5. The tax basis of the assets of Capital Growth acquired by
Strategic Growth will be the same as the tax basis of such assets
to Capital Growth immediately prior to the Reorganization, and the
holding period of such assets in the hands of Strategic Growth
will include the period during which the assets were held by
Capital Growth.
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, Capital Growth would recognize gain or
loss on the transfer of its assets to Strategic Growth and each shareholder of
Capital Growth would recognize a taxable gain or loss equal to the difference
between its tax basis in its Capital Growth shares and the fair market value of
the shares of Strategic Growth it received.
Strategic Growth's utilization after the Reorganization of any
pre-Reorganization capital loss carryovers realized by Capital Growth to offset
income or gain realized by Strategic Growth could be subject to limitation.
Shareholders of Capital Growth should consult their tax advisers regarding the
effect of the Reorganization in light of their individual circumstances.
Pro-forma Capitalization
The following table sets forth the capitalization of the Funds as of
September 30, 2009, and the capitalization of Strategic Growth on a pro forma
basis as of that date, giving effect to the proposed acquisition of assets at
net asset value. The pro forma data reflects an exchange ratio of approximately
1.64 Class A shares, 1.66 Class B shares and 1.81 Class C shares of Strategic
Growth for each Class A, Class B and Class C share, respectively, of Capital
Growth.
Capitalization of Capital Growth, Strategic Growth and
Strategic Growth (Pro Forma)
-------------------------- ------------------ ------------------ ----------------- ------------------------
Strategic Growth
Capital Growth Strategic Growth Pro-forma (After
Adjustments Reorganization)
-------------------------- ------------------ ------------------ ----------------- ------------------------
Net Assets
(in 000's)
Class A $253,268 $140,802 --- $394,070
Class B $4,316 $4,255 --- $8,571
Class C $1,803 $5,597 --- $7,400
Class I ----- $4,022 --- $4,022
----------- ------ ------
Total Net Assets $259,387 $154,676 $414,063
-------------------------- ------------------ ------------------ ----------------- ------------------------
Net Asset Value Per Share
Class A $12.52 $7.66 --- $7.66
Class B $11.23 $6.76 --- $6.76
Class C $12.26 $6.77 --- $6.77
Class I ----- $7.72 --- $7.72
-------------------------- ------------------ ------------------ ----------------- ------------------------
Shares Outstanding
(in 000's)
Class A 20,224 18,393 12,840 51,457
Class B 384 630 254 1,268
Class C 147 827 119 1,093
Class I ----- 521 --- 521
-------------------------- ------------------ ------------------ ----------------- ------------------------
Total Shares Outstanding 20,755 20,371 13,213(a) 54,339
-------------------------- ------------------ ------------------ ----------------- ------------------------
(a) Reflects change in shares outstanding due to an increase of Class A,
Class B and Class C shares of Strategic Growth in exchange for Class A,
Class B and Class C shares, respectively, of Capital Growth based on the
net asset value of Strategic Growth's Class A, Class B and Class C shares,
respectively, at September 30, 2009.