VIRTUS INVESTMENT PARTNERS, INC. - Annual Report: 2008 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2008

or

For the transition period from              to             

Commission file number 1-10994

VIRTUS INVESTMENT PARTNERS, INC.

(Exact name of registrant as specified in its charter)

100 Pearl St., 9th Floor, Hartford, CT 06103

(Address of principal executive offices)

Registrant’s telephone number, including area code

(800) 248-7971

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold (based on the closing price share as quoted on the NASDAQ Global Market) as of the last business day of the registrant’s most recently completed second fiscal quarter, was not available because the registrant’s common equity did not begin trading on the NASDAQ Global Market until January 2, 2009.

As of April 7, 2009, 5,786,492 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement which will be filed with the SEC in connection with the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

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Virtus Investment Partners, Inc.

Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2008

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PART I

Separation from the Phoenix Companies, Inc.

Prior to December 31, 2008, Virtus Investment Partners, Inc. (“Virtus” or the “Company”) was an indirect majority-owned subsidiary of The Phoenix Companies, Inc. (“PNX”). On February 7, 2008, PNX announced that its board of directors had determined to pursue the spin-off of the Company, representing the asset management business of PNX, excluding the assets and business of the Company’s subsidiary, Goodwin Capital Advisors, Inc. (“Goodwin”). On December 12, 2008, the PNX board of directors formally approved the spin-off and declared a dividend payable to each PNX holder of record at the close of business on the record date (which was December 22, 2008) for the distribution of one share of our common stock for every 20 shares of PNX common stock. The distribution of 100% of our common stock, representing 77% of the Company, to PNX stockholders (other than shares withheld to satisfy certain withholding obligations) was made on December 31, 2008. We refer to this transaction throughout this Annual Report as the spin-off. Following the spin-off, PNX does not have any ownership interest in the Company.

In connection with the spin-off, the Company and PNX entered into a separation agreement and several ancillary agreements to complete the separation of our business from PNX and to distribute our common stock to PNX stockholders. These agreements govern the relationship between the Company and PNX following the spin-off and also provide for the allocation of employee benefits, certain tax and other liabilities and obligations attributable to periods prior to and following the spin-off. The agreements were prepared before the spin-off and reflect agreements between affiliated parties established without arms-length negotiation. Along with the separation agreement, the other ancillary agreements include a transition services agreement, a tax separation agreement and an employee matters agreement. We may enter into other agreements with PNX, the terms of which would be determined at those times. The primary agreements are as follows:

Separation Agreement—Addresses the principal corporate transactions required to effect the spin-off; the transfer of certain assets and liabilities; the distribution of shares of our common stock to PNX stockholders; and other agreements governing the relationship between the Company and PNX following the spin-off.

Transition Services Agreement—Addresses transition services that PNX may provide to us for a limited period following the spin-off, including certain administrative and other services on an interim basis, such as information technology support, human resources and other limited services consistent with past practices.

We are now performing all of the interim services detailed in the transaction services agreement, including human resources, information technology, facilities, legal and certain other services.

Tax Separation Agreement—Sets forth the responsibilities of the Company and PNX with respect to, liabilities for federal, state, local and foreign taxes for periods before and including the spin-off, the preparation and filing of tax returns for such periods, and disputes with taxing authorities regarding taxes for such periods.

Employee Matters Agreement—Provides the structure for the transition of our employees from PNX’s employment and from PNX’s employee plans and programs to employment and employee plans and programs with the Company. The agreement allocates responsibility for certain employee and employee benefit matters and liabilities after the spin-off date.

Copies of the forms of these agreements are filed as exhibits to, and summaries of these agreements are included with, our Form 10 Registration Statement filed with the SEC in connection with our spin-off from PNX (“Form 10 Registration Statement”).

Overview of Business

We are a provider of investment management products and services to individuals and institutions. We operate a multi-manager asset management business, comprising a number of individual affiliated managers,

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each having its own distinct investment style, autonomous investment process and brand. We believe our customers value this approach.

Investors have an array of needs driven by factors such as market conditions, risk tolerance and investment goals. A key element of our business is to offer a variety of investment styles and multiple disciplines to meet those needs. For our mutual funds, we supplement the investment capabilities of our affiliated managers with those of select unaffiliated sub-advisors. We do that by partnering with these managers whose strategies are not typically available to retail mutual fund customers.

We provide our products in a number of forms and through multiple distribution channels. Our retail products include open-end mutual funds, closed-end funds and separately managed accounts. Our fund family of 49 open-end funds is distributed primarily through intermediaries. Our five closed-end funds trade on the New York Stock Exchange. Retail separately managed accounts are comprised of intermediary programs sponsored and distributed by unaffiliated brokerage firms and private client services originated and maintained by our affiliated managers. We also manage institutional accounts for corporations, multi-employer retirement funds and foundations, endowments, special purpose funds and other types of institutions.

Our Repositioning of the Business

During the period from 2002 through 2008, we undertook a number of critical actions to reposition our business for long-term growth and improved profitability. Through these actions, we focused on our operating structure, product mix, distribution strategy and operating expense base:

Our Asset Managers

Our asset management services are provided by our affiliated managers as well as by unaffiliated external managers through sub-advisory agreements. The affiliated managers, who are registered investment advisors under the Investment Advisers Act of 1940, manage our mutual funds and closed-end funds, and provide investment management services for institutional and separately managed accounts. We provide our managers with consolidated distribution and administrative support, thereby allowing each affiliate to focus on asset management. We monitor the quality of the managers’ products by assessing their performance, style, consistency and the discipline with which they apply their investment process.

For certain of our open-end mutual funds, we complement our affiliates’ skills with those of unaffiliated boutique sub-advisors who offer strategies that we believe also appeal to investors.

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Our affiliated firms participate in the earnings they generate through compensation arrangements that include incentive bonus pools based primarily on their profits and, in some cases, on the specific performance of the products they manage. Our affiliated firms and sub-advisors, and their respective assets under management, styles and products are as follows:

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Our Investment Products

Our assets under management are comprised of mutual fund assets (open- and closed-end), separately managed accounts (intermediary sponsored and private client) and institutional accounts (traditional institutional mandates and structured products).

Assets Under Management By Product as of December 31, 2008

($ in billions)

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Open-End Mutual Funds

As of December 31, 2008, we managed 49 open-end funds, across a variety of equity and fixed income styles, including money market, asset allocation fund-of-funds and alternative investments, with total assets of $11.4 billion. As of December 31, 2008, approximately 19% of our mutual fund assets (32% excluding money market mutual funds) were managed by our affiliated managers.

Our equity fund offerings encompass a number of market caps and investment styles, including large-, mid- and small-cap funds offered in value, core and growth styles, and including international, global, emerging market and sector-specific funds. Our equity funds represented $3.7 billion of our assets under management at December 31, 2008. Our fixed income fund offerings cover a broad range of fixed income asset classes, including core, multi-sector, tax-exempt and high yield. These fixed income funds represented $3.0 billion of our assets under management at December 31, 2008.

We offer individual money market funds focused on corporate, tax-exempt and government securities. Our money market funds comprised $4.7 billion in assets under management at December 31, 2008. Our fund family also includes a number of asset allocation fund-of-funds, including a set of target risk funds and one that invests primarily in alternative investments.

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Our family of open-end mutual funds as of December 31, 2008, is comprised of the following:

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Past performance does not guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

Closed-End Funds

We manage the assets of five closed-end funds as of December 31, 2008, each of which is traded on the New York Stock Exchange, with total assets of $4.0 billion. Closed-end funds do not continually offer to sell and redeem their shares; rather, daily liquidity is provided by the ability to trade the shares of these funds at prices that may be above or below the shares’ net asset value. Our closed-end products include utility, municipal and corporate taxable and tax-exempt bonds and tactical asset allocation strategies provided by two of our affiliated managers.

Our family of closed-end funds as of December 31, 2008, is comprised of the following:

Separately Managed Accounts

Separately managed accounts are individually owned portfolios that are managed by an investment manager in exchange for fees paid by the investor. Separately managed accounts include broker-dealer sponsored programs, whereby an intermediary assists individuals in identifying their investment objectives and hires investment managers that have been approved by the broker-dealer to fulfill those objectives; and, private client accounts that are accounts of high net worth individuals who are direct clients of our affiliates. Intermediary sponsored programs and private client account assets totaled $3.0 billion at December 31, 2008.

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Institutional Accounts

We offer a variety of equity, fixed income and real estate investment trust strategies to institutional clients, including corporations, multi-employer retirement funds and foundations, endowments and special purpose funds. We also include in our institutional products investment management services to certain funds available to purchasers of variable life and variable annuity products, of which we managed $0.3 billion as of December 31, 2008. Our institutional assets under management totaled $3.1 billion as of December 31, 2008.

As of December 31, 2008, we managed $0.8 billion of structured finance products. The Company acts as the collateral manager for collateralized loan obligations and collateralized debt obligations (“CLOs” and “CDOs,” respectively.) Fees consist of both senior management fees and subordinated management fees. Senior management fees on the CLOs and CDOs are calculated at a contractual fee rate applied against the current par value of the total collateral being managed. Subordinated management fees, also calculated against the current par value of the total collateral being managed, are recognized only after certain portfolio criteria, such as interest coverage and asset over-collateralization levels, are met. The underlying collateral is primarily comprised of high yield, asset-backed and mortgage-backed securities and loans. The Company has no financial or operational obligations with respect to the underlying performance of the collateral. The Company is no longer actively seeking opportunities as collateral manager for structured finance products. Recent market conditions have contributed to a continued reduction in structured finance product assets under management which were $0.8 billion at December 31, 2008 compared to $3.3 billion at December 31, 2007. The Company is also the advisor for $0.2 billion of structured finance product assets managed by Goodwin. Management fees for structured finance products were $5.0 million in 2008 compared to $8.1 million in the prior year. These fees in 2008 represented 3.9% of total management fees and were comprised of $3.5 million from senior management fees and $1.5 million from subordinate management fees from its management activities. If values of the underlying collateral deteriorate further, however, this could impact the ability of the Company to collect its subordinated management fees. In addition, in certain circumstances, the equity investors in our CDOs or CLOs can trigger a redemption and liquidation prior to the maturity date.

Our Investment Management, Administration and Transfer Agent Fees

Our net investment management fees, administration fees and net transfer agent fees earned in each of the last three years were as follows:

We provide investment management services to funds and accounts pursuant to investment management agreements. With respect to open-end funds and closed-end funds, we receive fees based on each fund’s average

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daily or weekly net assets. For our open-end mutual funds, the gross management fees range from 0.10% to 1.50% of average assets under management, depending on the type of fund. Most fee schedules provide for rate declines as asset levels increase to certain thresholds. For those funds for which we have sub-advisory agreements, the sub-advisors receive a portfolio management fee based on the percentage of the aggregate amount of average daily net assets in the funds they sub-advise. Fees earned on closed-end funds range from 0.50% to 0.85% of total net assets. For separately managed accounts and institutional accounts, we generally receive fees based on the value of the assets managed on a particular date, such as the last day of a previous quarter. For separately managed accounts and institutional accounts, fees are negotiated and are based primarily on asset size, portfolio complexity and individual client requests, and range from 0.15% to 1.00% for equity strategies and from 0.08% to 0.50% for fixed income strategies.

We provide fund administration services to our open-end funds, certain of the closed-end funds, and certain funds sponsored by PNX. As provided in arrangements with these funds, VP Distributors Inc. (“VPD”, formerly Phoenix Equity Planning Corporation or PEPCO) provides administrative services, such as recordkeeping and preparing and filing documents required to comply with federal and state securities laws.

Additionally, we act as transfer and dividend disbursing agent for our open-end funds. As such, VPD is responsible for handling orders and related transactions regarding shares of our mutual funds.

Our Mutual Fund Investment Management, Administration and Transfer Agent Agreements

Each of our mutual funds has entered into an investment management agreement with a Company advisory subsidiary (each, an “Adviser”). Although specific terms of agreements vary, the basic terms are similar. Pursuant to the agreements, the Adviser provides overall management services to a fund, subject to supervision by the fund’s board of directors. The investment management agreements are approved initially by fund shareholders and must be approved annually by each fund’s board of directors, including a majority of the directors who are not “interested persons” of the Adviser. Agreements may be terminated by either party upon 60 days’ written notice, and may terminate automatically in certain situations, for example, a “change in control” of the Adviser. In arrangements where our funds are managed by a sub-advisor, the agreement calls for the sub-advisor to manage the day-to-day operations of the funds portfolio.

Each fund bears all expenses associated with its operations, including the costs associated with the issuance and redemption of securities, where applicable. The funds do not bear compensation expenses of directors or officers of the fund who are employed by the Company or its subsidiaries. In some cases, to the extent certain enumerated expenses exceed a specified percentage of a fund’s or a portfolio’s average net assets for a given year, the Adviser may absorb such excess through a reduction in the management fee.

VPD is the administrative agent of each fund. As such, subject to the oversight of the funds’ trustees or directors, VPD is responsible for managing the business affairs of our mutual funds. Administrative services include recordkeeping, preparing and filing documents required to comply with federal and state securities laws, legal administration and compliance services, supervising the activities of the funds’ other service providers, providing assistance with fund shareholder meetings, as well as providing office space, equipment and personnel that may be necessary for managing and administering the business affairs of the funds.

VPD is the transfer agent of each fund. As such, VPD is responsible for handling orders for shares of our mutual funds. Transfer agent services include receiving and processing orders for purchases, exchanges and redemptions of fund shares; conveying payments; maintaining shareholder accounts; preparing shareholder meeting lists; mailing, receiving and tabulating proxies; mailing shareholder reports and prospectuses; withholding taxes on shareholder accounts; preparing and filing required forms for dividends and distributions; preparing and mailing confirmation forms, statements of account and activity statements; and providing shareholder account information.

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Our Distribution Services

Our principal retail marketing strategy is to distribute funds and separately managed accounts through financial intermediaries to individuals. We have broad access in this marketplace, with distribution partners that include national and regional broker-dealers, independent broker-dealers and independent financial advisory firms. We support these distribution partners with a team of regional sales professionals (“wholesalers”), a national account relationship group and separate teams for the retirement market and the registered investment advisory market. Our sales and marketing professionals serve as a resource to financial advisors seeking to help clients address wealth management issues and support the marketing of our products and services tailored to this marketplace.

We also commit significant resources to serving high-net-worth clients who access investment advice outside of traditional retail broker-dealer channels. Specialized teams at our affiliates develop relationships in this market and deal directly with these clients.

Our institutional distribution strategy combines both a coordinated and partner-centric model. Our product specialists, who are part of the portfolio management teams at our affiliated managers, team with sales generalists and consultant relationship personnel, representing all of our investment strategies. Through relationships with consultants, they target key market segments, including foundations and endowments, corporate, public and private pension plans.

Our Broker-Dealer Services

VPD, a broker-dealer registered under the Securities Exchange Act of 1934, serves as principal underwriter and national wholesale distributor of our open-end mutual funds and managed accounts. Mutual fund shares are distributed by VPD under sales agreements with unaffiliated national and regional broker-dealers and financial institutions. VPD also markets advisory services of affiliated asset managers to sponsors of managed account programs.

Our Competition

We face significant competition from a wide variety of financial institutions, including other asset management companies, as well as from proprietary products offered by our distribution sources such as banks, broker-dealers and financial planning firms. Competition in our businesses is based on several factors including investment performance, access to distribution channels, service to advisors and their clients, and fees charged. Our competitors, many of which are larger than we are, often offer similar products, use similar distribution sources, offer less expensive products, have greater access to key distribution channels and have greater resources than us.

Our Regulatory Matters

We are subject to regulation by the Securities and Exchange Commission (“SEC”), Financial Industry Regulatory Authority (“FINRA”) and other federal and state agencies and self-regulatory organizations. Each advisor, including unaffiliated sub-advisors, is registered with the SEC under the Investment Advisers Act. Each closed-end fund, open-end fund and defined portfolio is registered with the SEC under the Investment Company Act of 1940. VPD is registered with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA.

The financial services industry is one of the most highly regulated in the United States and failure to comply with related laws and regulations can result in the revocation of registrations, the imposition of censures or fines, and the suspension or expulsion of a firm and/or its employees from the industry. All of our funds currently available for sale are qualified in all 50 states, Washington, D.C., Puerto Rico and the U.S. Virgin Islands. Most aspects of our investment management business, including the business of the sub-advisors, are subject to various federal and state laws and regulations.

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Our officers, directors, and employees may, from time to time, own securities that are also held by one or more of our funds. Our internal policies with respect to personal investments are established pursuant to the provisions of the Investment Company Act and/or the Investment Advisers Act. Employees, officers and directors who, in the function of their responsibilities, meet the requirements of the Investment Company Act or Investment Advisers Act, or of FINRA regulations, must disclose personal securities holdings and trading activity. Those employees, officers and directors with investment discretion and access to investment decisions are subject to additional restrictions with respect to the pre-clearance of the purchase or sale of securities over which they have investment discretion or beneficial interest. Other restrictions are imposed upon access persons with respect to personal transactions in securities held, recently sold or contemplated for purchase by the Company’s open-end and closed-end funds. All access persons are required to report holdings and transactions on an annual and quarterly basis pursuant to the provisions of the Investment Company Act and Investment Advisers Act. In addition, certain transactions are restricted so as to seek to avoid the possibility of improper use of information relating to the management of client accounts.

Our Employees

As of December 31, 2008, we had approximately 300 full time equivalent employees. None of our employees is a union member. We consider our relations with our employees to be good.

Executive Officers

The following table sets forth certain information regarding the executive officers of the Company as of March 26, 2008:

Mr. Aylward is the Company’s President, Chief Executive Officer and Director. Mr. Aylward served as President, Asset Management, and Senior Executive Vice President of PNX from February 2007 through December 2008. He has also served as President of the Company since November 6, 2006. Mr. Aylward also served as Senior Vice President and Chief Operating Officer, Asset Management, of PNX from 2004 through 2006, and as Chief of Staff to the CEO of PNX, from 2002 through 2004. Mr. Aylward joined Phoenix in 1996 and served in several senior financial positions in its Asset Management business prior to 2002. Mr. Aylward is also President and Trustee (2006-present) of the Virtus Mutual Funds Family after having been Executive Vice President (2004-2006) and serves as Chairman, President and Chief Executive Officer of The Zweig Fund, Inc. and The Zweig Total Return Fund, Inc. (2006-present).

Mr. Angerthal is our Executive Vice President, Chief Financial Officer and Treasurer. Mr. Angerthal also serves as our principal accounting officer. Mr. Angerthal joined the Company on October 6, 2008. Prior to joining the Company, Mr. Angerthal had been the Chief Financial Officer of CBRE Realty Finance from 2005 to 2008. Prior to that, he held several positions with GE Corporation from 1996 to 2005. From 2002 to 2005, he served as Manager, Financial Planning & Analysis of GE Real Estate; from 1999 to 2002, he served as Staff Analyst, Investor Relations of GE Capital Corp.; and from 1996 to 1999, he served as Director, Finance of NBC. Prior to GE, he was a manager of business assurance in the audit practice of Coopers & Lybrand in New York.

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Ms. Curtiss is our Executive Vice President, Operations. Ms. Curtiss is responsible for operations, mutual fund transfer agency and shareholder servicing. She has been associated with the Company in various capacities since 1987. She most recently served as Treasurer and Chief Financial Officer for the Company’s mutual funds, and managed PNX’s mutual fund accounting and administration. She has 28 years experience in the asset management and financial services business, including financial planning, asset/liability management, performance measurement, internal controls and product development, including 11 years specifically in the mutual funds business.

Mr. Neamtz is Executive Vice President, Retail Distribution, and had the same role with PNX since he joined the firm in December 2007 to direct the retail distribution efforts for PNX’s family of mutual funds and its separately managed account offerings. Prior to joining PNX, Mr. Neamtz had been Managing Partner of Ridgeline Capital, LLC from 2006 to 2007 with responsibility for business management. Prior to that, he held several positions with AIG SunAmerica, Inc. From 1996 to 2006, he served as Chief Executive Officer and Director of AIG SunAmerica Capital Services, Inc., a subsidiary of AIG SunAmerica that distributes annuities, mutual funds and asset management products, and as Executive Vice President and Director of AIG SunAmerica Asset Management, Inc.

Mr. Waltman is Executive Vice President, Product Management, and has had the same role at the Company since July 28, 2008. From January 2008 to July 2008, Mr. Waltman was Vice President, Head of Investment Product at Prudential Retirement. Prior to that, he held several positions at the Company, including Senior Vice President, Product Development and Management from February 2006 to December 2007, Vice President, Product Development and Management from January 2005 to February 2006, Chief Administrative Officer from August 2003 to December 2004 and Second Vice President from October 2002 to August 2003. Mr. Waltman first joined the Company in August 1990. Mr. Waltman currently serves as Senior Vice President for numerous trusts and mutual funds sponsored by the Company.

Equity Investment

Pursuant to an Investment and Contribution Agreement dated October 30, 2008, among PNX, Phoenix Investment Management Company (“PIM”), the Company, and Harris Bankcorp (the “Investment Agreement”), the Company authorized the sale of 9,783 shares of our Series A Preferred Stock to Harris Bankcorp. On October 31, 2008, PIM sold Harris Bankcorp 9,783 shares of our Series A Preferred Stock owned by it for a nominal amount. In connection with the proposed spin-off, on December 31, 2008, Harris Bankcorp and PIM exchanged the 9,783 shares of Series A Preferred Stock for an equal number of shares of our Series B Convertible Preferred Stock (the “Series B”). PIM then sold an additional 35,217 shares of our Series B to Harris Bankcorp for an aggregate purchase price of $35.0 million.

As a result, Harris Bankcorp currently holds 45,000 shares of our Series B. The Series B is initially convertible into approximately 23% of our fully diluted common stock. As a condition of the investment agreement, Harris Bankcorp has the right to nominate one director to our board of directors, so long as it beneficially owns at least 10% of our common stock (including shares issuable on the conversion of our Series B). Additionally, so long as at least 66-2/3% of the Series B initially sold to Harris Bankcorp remains outstanding, the holders of a majority of the then outstanding shares of Series B have the right to elect one director to our board of directors. In the event that Harris Bankcorp exercises the additional financing right described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Series B Convertible Preferred Stock,” and, as a result, beneficially owned in excess of 33% of our outstanding common stock (including shares issuable on the conversion of our Series B), it would have the right to appoint one additional director to our Board, subject to regulatory considerations.

The Series B ranks senior to our common stock and to any class or series of stock of the Company that we may issue in the future unless the terms of such stock expressly provides otherwise, and ranks junior to our existing and future indebtedness and liabilities.

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For additional information on the terms of the Series B and Harris Bankcorp’s rights under the Investment Agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Series B Convertible Preferred Stock”.

Available Information

The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934, will be available free of charge on the Company’s website located at www.virtus.com as soon as reasonably practicable after they are filed with or furnished to the SEC. These reports are also available at the SEC’s website at www.sec.gov.

A copy of the Company’s Corporate Governance Principles, its Code of Conduct, and the charters of the Audit Committee, the Compensation Committee and the Governance Committee are posted on the Company’s website, www.virtus.com, under “Investor Relations,” and are available in print to any person who requests copies by contacting Investor Relations by email to: corporate.secretary@virtus.com or by mail to Virtus Investment Partners, Inc., c/o Corporate Secretary, 100 Pearl Street, Hartford, CT 06103. Information contained on the website is not incorporated by reference or otherwise considered part of this document.

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You should carefully consider the risks described below, together with all of the other information included in this Annual Report, in evaluating the Company and our common stock. If any of the risks described below actually occurs, our business, financial results, financial condition and stock price could be materially adversely affected.

Risk Factor Related to the Current Market Environment

Recent market and economic developments may materially and adversely affect our business, revenues, earnings, sales, assets under management, liquidity, financial condition and results of operations.

Financial markets have experienced unprecedented credit and liquidity issues as well as volatility and declines in the equity markets. Credit markets have suffered significantly, with many lenders and institutional investors reducing, and in some cases, ceasing to provide funding to borrowers, including other financial institutions. Additionally, concerns over increasing unemployment, fluctuating inflation and energy costs have contributed to diminished expectations for the economy and the financial markets going forward. These factors, combined with declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and fears of a deep and prolonged recession. As a result, there has been a severe impact on the global financial markets and economies.

This economic environment has had a direct impact on the actions of both retail and institutional investors. The continued erosion of the equity and fixed income markets has materially and adversely impacted our assets under management, which has resulted in lower fee revenues. Although it is not possible to predict how long this economic downturn will continue, it has, and will continue to have, a direct adverse impact on our financial results.

Asset managers, including the Company, have also experienced decreased investment inflows and an increase in redemptions of certain products, which creates further pressure on our net income and liquidity.

It is difficult to predict which aspects of our products and/or business will be adversely affected. However, the resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial and capital markets and reduced business activity materially and adversely affects us. Recent market and economic developments have affected, or have the potential to affect, us adversely by:

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Any of these negative effects may materially and adversely affect our business, revenues, earnings, sales, assets under management, liquidity, financial condition and results of operations.

Risk Factors Relating to Our Business

There are significant risks associated with our operation as a stand-alone public company.

Prior to December 31, 2008, we were an indirect majority-owned subsidiary of PNX. Following our December 31, 2008 spin-off from PNX, PNX no longer has any ownership interest in our Company.

Historically, as part of the PNX affiliated group, we had access to short-term and long-term credit, and services provided to affiliates within the PNX affiliated group. As a stand-alone public company, we have had to establish all of our own services, systems and controls and have been seeking to establish separate credit arrangements. While we have established our own separate services, operations and controls, as a stand-alone company we may encounter significant and unexpected difficulties and issues and may incur significant additional costs which we had neither expected nor planned.

Prior to our spin-off, we were part of the internal control environment of PNX, with internal controls over financial reporting established as part of the overall PNX internal control environment. As a stand-alone public company, we are in the process of assessing, modifying and implementing our own internal control environment. In connection with the audits of our financial statements for the year ended December 31, 2008, both we and our independent registered accounting firm identified significant deficiencies and material weaknesses with respect to our internal controls over financial reporting. See Item 9A Controls and Procedures for more information. Pursuant to the Sarbanes Oxley Act of 2002, we will be required to separately report on our internal control over financial reporting commencing with our Annual Report on Form 10-K for the year ended December 31, 2009. There can be no assurance that as part of that process, or otherwise, we may not identify one or more material weaknesses in our internal control over financial reporting as a separate, independent company, for which we would need to implement new or improved controls and remediation. We cannot provide assurance that these controls, procedures, policies and systems will adequately address and effectively mitigate all risks inherent in our business and operations.

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Our historical consolidated financial information is not necessarily representative of the results we would have achieved as a stand-alone company and may not be a reliable indicator of our future results.

Our historical consolidated financial information included in this Annual Report does not reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone company during the periods presented or those we will achieve in the future. This is primarily a result of the following:

Our separation from PNX could potentially increase our U.S. federal income tax expense by, among other things, reducing or eliminating our net operating loss carryforwards and other income tax benefits generated by our business over its history.

Due to the separation, we will no longer file a consolidated U.S. federal income tax return with PNX for years beginning after December 31, 2008. As a result, the Company and PNX will no longer be able to offset one another’s net operating and capital gains with net operating and capital losses to the extent otherwise available. In connection with the spin-off, the Company entered into a tax separation agreement with PNX on December 18, 2008, as amended on April 8, 2009. PNX has historically filed consolidated federal income tax returns, which included Virtus as a wholly owned subsidiary. At December 31, 2008, excluding the impact of the valuation allowance, deferred tax assets of $112.5 million are recorded in the Company’s financial statements, attributable primarily to the tax basis in excess of financial reporting basis in certain Company intangibles that will be retained by the Company in connection with the terms of the tax separation agreement, as amended. The final election to allocate federal income tax attributes is expected to be made by PNX upon the filing of its consolidated federal income tax return for the year ended December 31, 2008, which is due to be filed on or before September 15, 2009. The tax separation agreement, as amended, provides that PNX will make specific elections and waivers intended to preserve the Company’s tax basis in intangible assets. In the event that some or all of the tax attributes the Company expects to retain are ultimately not available to the Company, it would reduce or eliminate a portion of these deferred tax assets.

Poor investment performance of our products could adversely affect our assets under management, sales, revenues and earnings.

The securities markets can be volatile and have recently experienced periods of substantial declines. There are several ways in which market declines and volatility have affected, and have the potential to affect, us negatively, including:

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Net flows related to our asset management strategies can also be affected by investment performance relative to other asset management companies. Our asset management strategies are rated or ranked by independent third parties and individual distribution partners, and many industry periodicals and services provide assessments of the relative performance of our strategies. These assessments often affect the investment decisions of customers. If the relative performance or assessments of our strategies decline materially, the assets under management related to these strategies may decrease as customers select strategies with better performance.

Future periods of poor securities markets or relative performance would have an adverse effect on our assets under management, sales, revenues, the carrying value of our goodwill or intangible assets, and earnings.

We must satisfy financial covenants under our existing or any future financing arrangements.

In connection with the spin-off, the Company entered into a new secured loan agreement with Phoenix Life Insurance Company (“Phoenix Life”), as lender and the Company as borrower (the “Phoenix Loan Agreement”). Under the Phoenix Loan Agreement, the Company must maintain certain financial covenants. A summary of these financial covenants is included in this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The terms of this loan required the Company to maintain a minimum net worth of $135.0 million. At December 31, 2008, we would not have been in compliance with this covenant as a result of our $127.1 million fourth quarter pre-tax non-cash impairment charge related to goodwill and intangible assets recorded on December 31, 2008, the date of our spin-off transaction. On March 31, 2009, the Company and PNX amended the loan agreement to decrease the minimum net worth covenant from $135.0 million to $50.0 million, effective as of December 31, 2008. There can be no assurance that at all times in the future we will satisfy all such covenants or obtain any required waiver or amendment, in which event the loan could become immediately due. In addition, if the Company enters into a new financing arrangement, it will likely have debt covenants. If the Company was not able to maintain compliance with such covenants, the Company could be subject to accelerated payment of the debt.

We may be unable to refinance our existing loan agreement or obtain other necessary financing for our other future cash needs.

Global credit markets and the financial services industry have been experiencing a period of unprecedented turmoil, and these events have adversely impacted the availability and cost of credit. The Company has been seeking to obtain financing to retire the remainder of its secured debt obligation to Phoenix Life, and for other future cash needs. Potential types of financing arrangements could include secured or unsecured credit facilities, lines of credit, or other bank financing arrangements. Given the continued weakness in the credit markets, and our limited operating history as a stand-alone independent company, there can be no assurance that we will obtain such financing on satisfactory terms, or on terms as favorable as those historically available from PNX.

In the event we are unable to obtain such new or replacement financing, we would rely upon our existing working capital and our cash flows from operations to satisfy our ongoing cash needs for our operations, including our obligations under the outstanding Phoenix Life loan and our payment of preferred stock dividends. There can be no assurance that such existing and future cash resources will be sufficient at all times for our operations and if not sufficient at any time, we may be required to reduce our costs, curtail certain of our operations or consider equity financing or other strategic initiatives.

Assuming we obtain new or replacement financing, we would expect that the financing arrangement would include significant financial and other covenants. The existing difficult economic environment, which we expect to continue and which could deteriorate further, is expected to continue to impact our business and financial results. As a result, there can be no assurance that the Company would at all times satisfy all financial and other covenants under any new or replacement financing.

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Any decrease in revenues would likely impact our margins due to our non-variable expenses.

A decline in revenues due to decreases in value of our assets under management or an adverse change in the composition of our assets under management may also disproportionately impact our operating margins since certain of our overhead and other costs are not variable and would take a period of time to reduce relative to any decrease in revenues.

Our business operations, investment returns and profitability could be adversely impacted by inadequate performance of third-party relationships.

We are dependent on certain third-party relationships to maintain essential business operations. These services include, but are not limited to, information technology infrastructure, application systems support, mutual fund and investment accounting services, transfer agent and cash management services, custodial services, records storage management, backup tape management, security pricing services, payroll, legal and employee benefit programs. In addition, we maintain contractual relationships with certain investment management firms to sub-advise some of our portfolios.

We periodically negotiate provisions and renewals of these relationships and there can be no assurance that such terms will remain acceptable to such third parties or us. An interruption in our continuing relationship with certain of these third parties or any material delay or inability to deliver essential and any other contracted services could materially affect our business operations and potentially adversely affect our profitability.

Clients can withdraw assets from our management for a variety of reasons, which could lead to a decrease in our revenues and earnings.

Generally, our clients can terminate their relationships with us or our distribution partners at will or on relatively short notice. They can also reduce the aggregate amount of assets we manage for them or shift their investments to lower fee products that we manage for various reasons, including investment performance, changes in investment preferences, changes in reputation in the marketplace, changes in client management or ownership, loss of key investment management personnel and financial market performance. In declining markets, the pace of mutual fund redemptions and withdrawals of assets from other accounts could accelerate. Poor performance relative to other asset management firms may result in decreased purchases of fund shares, increased redemptions of fund shares, and the loss of institutional or individual accounts. A reduction in the assets we manage, and the associated decrease in revenues and earnings, could have a material adverse effect on our business.

Our separation from PNX could adversely affect our business and profitability due to the loss of PNX’s brand and reputation.

As a majority-owned subsidiary of PNX, we marketed certain of our products and services using the “Phoenix” brand name and logo. While prior to the distribution we had already begun to market and build awareness of our new name and brand, our name change to Virtus could potentially adversely affect our ability to attract and retain customers and their investments, which, if it were to occur, could result in asset outflows or reduced sales of our mutual funds and other investment products. Further, developing broad name recognition can be expected to take significant time and effort. As the spin-off occurred at the end of 2008, we cannot as yet predict the longer-term effect that our separation from PNX will have on our business, customers, sub-advisors, distribution partners or employees.

As with all asset management businesses, we are subject to reputational risk.

As with other asset management firms, our reputation is an important asset to us and any potential issues, events or other matters which might negatively impact our reputation or perception among our customers could adversely affect our assets under management and financial results. The unprecedented volatility in the capital

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and financial markets over the past twelve months, which has resulted in the substantial decline in asset values, impacts the asset management industry as a whole as well as customer perceptions. Further, any issues specific to our Company, such as any noncompliance with any of the legal and regulatory requirements to which our business is subject, or any customer dissatisfaction or claim, could also potentially impact our reputation among customers, which may adversely impact our assets under management and financial results.

The agreements with PNX may involve, or may appear to involve, conflicts of interest and may not have the same terms as arms length agreements.

Because the spin-off involved the separation of PNX’s existing businesses into two independent companies, we entered into certain agreements with PNX to provide a framework for our initial relationship with PNX following the spin-off. These agreements were established by PNX while we were still an indirect wholly-owned subsidiary of PNX. Accordingly, prior to the spin-off, our officers were employees or officers of PNX or its subsidiaries and, as such, had an obligation to serve the interests of PNX and its subsidiaries. As a result, the agreements with PNX were under the control of PNX and may not be the same agreements entered into on an arm’s length basis.

In addition, we and PNX have mutual rights and obligations related to these and other agreements entered into prior to or in connection with our spin-off. In the event for any reason PNX is unable or unwilling to meet its obligations under these agreements, our business, financial position or results of operations may be materially adversely affected.

We might be unable to attract or retain employees who are integral to our business.

The success of our business is dependent to a large extent on our ability to attract and retain key employees. Competition in the job market for professionals such as our senior executives, heads of our various business units, our portfolio managers, securities analysts and sales personnel is generally intense. Most of our employees are not subject to employment contracts or non-compete agreements. Any inability to retain our key employees, or to attract and retain additional qualified employees, could have a negative impact on our business.

In addition, because the success of our business depends upon our key personnel, our ability to prepare in advance for and to respond to any unexpected management changes will be important for the success of our business. Any inability or delay by us in replacing any of our key management positions that may become vacant could negatively impact our management team and future business operations and results.

The independent trustees or directors of our mutual funds and closed-end funds, intermediary program sponsors, managed account clients and institutional asset management clients could terminate their contracts with us. This would reduce our revenues and earnings.

Each of the mutual funds and closed-end funds for which we act as investment advisor or sub-advisor is registered under the Investment Company Act of 1940 (the “Investment Company Act”) and is governed by a board of trustees or board of directors. Each fund’s contract is renewed annually by the fund’s board. Either the board members or, in limited circumstances, the stockholders may terminate an advisory contract with us and move the assets to another investment advisor. The board members also may deem it to be in the best interests of a fund’s stockholders to make other decisions adverse to us, such as reducing the compensation paid to us, requesting that we subsidize fund expenses over certain thresholds or imposing restrictions on our management of the fund.

Our asset management agreements with intermediary program sponsors, private clients and institutional clients are generally terminable by these sponsors and clients upon short notice without penalty. As a result, there would be little impediment to these sponsors or clients terminating our agreements if they became dissatisfied with our performance.

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The termination of any of the above agreements relating to a material portion of assets under management would adversely affect our investment management fee revenues and earnings and could possibly require us to take a charge to earnings as a result of the impairment of the goodwill or intangible assets associated with our asset managers.

Goodwill or intangible assets could become further impaired requiring a charge to earnings in the event of significant market declines, net outflows of assets or losses of investment management contracts.

At December 31, 2008, total assets on our balance sheet were $159.0 million and included $65.8 million of goodwill and other intangible assets. We test our goodwill and other intangible assets for impairment on an annual basis or more frequently whenever events or changes in circumstances warrant. The amount of goodwill and intangible assets on our balance sheet is supported by the assets under management and the related revenues of the business. Recent impairment charges related to these assets were triggered by the significant declines in the equity markets and the decline in valuations of financial companies that were experienced primarily in the second half of 2008. It might be necessary to recognize additional impairment of these assets should these events worsen or recur or if we experience additional decreases in assets under management for these or any other reasons, such as material outflows, the termination of a material investment management contract or material outflows if clients withdraw their assets following the departure of a key employee. To the extent that declines in the capital markets and general global economy continue, further impairment becomes more likely, which would negatively impact our results of operations and financial position.

We face strong competition in our businesses from mutual fund companies, banks and asset management firms. This competition could impair our ability to retain existing customers, attract new customers and maintain our profitability.

We face strong competition in our businesses. We believe that our ability to compete is based on a number of factors, including investment performance, service, distribution capabilities and relative scale. We are also highly dependent on our distribution relationships. Our actual and potential competitors include a large number of mutual fund companies, banks and asset management firms, many of which have advantages over us. Industry consolidation has resulted in larger competitors with financial resources, marketing and distribution capabilities, and brand identities that are stronger than ours. Larger firms also may be able to offer, due to economies of scale, lower cost products. If we do not compete effectively in this environment, our profitability and financial condition would be materially adversely affected.

Potential changes in federal and state regulation may increase our business costs, which could adversely affect our business, consolidated operating results, financial condition or liquidity.

We are subject to compliance with the Sarbanes-Oxley Act of 2002, as well as regulation by the SEC, the Financial Industry Regulatory Authority (“FINRA”) and other federal and state agencies and self-regulatory organizations (including NASDAQ). Each advisor (including unaffiliated sub-advisors) is registered with the SEC under the Investment Advisers Act of 1940 (the “Investment Advisers Act”). Each closed-end fund and open-end fund is registered with the SEC under the Investment Company Act. Our broker-dealer is registered with the SEC under the Securities Exchange Act and is a member of FINRA. All of our funds currently available for sale are qualified in all 50 states, Washington, D.C., Puerto Rico, and the U.S. Virgin Islands. Most aspects of our investment management business, including the business of the sub-advisors, are subject to various federal and state laws and regulations.

These laws generally grant supervisory agencies and bodies the power to limit or restrict us and any sub-advisor from carrying on its investment management business in the event that it fails to comply with such laws and regulations. Sanctions may include the suspension of individual employees, limitations on our engaging in the investment management business for specified periods of time, the revocation of the advisors’ registrations as investment advisors or other censures and fines.

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Compliance with these laws and regulations is time consuming and personnel-intensive, and changes in these laws and regulations may increase materially our direct and indirect compliance costs and other expenses of doing business, thus having an adverse effect on our business and operating results.

Although we spend substantial time and resources on our compliance policies, procedures and practices, non-compliance with applicable statutes, laws, rules, regulations and other requirements or our inability to timely and properly modify and update our compliance policies, procedures and practices to this frequently changing and highly complex regulatory environment, could result in our being subject to sanctions, fines, penalties, cease and desist or other relief, license revocation, suspensions or even expulsion from particular activities or markets.

Legal and regulatory actions are inherent in our businesses and could result in financial losses or harm to our businesses.

We are at various times involved in litigation and arbitration, both as a defendant and as a plaintiff. In addition, various regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, securities laws and laws governing the activities of broker-dealers. At various times we and our employees have also been subject to other claims alleging violations of rules and regulations of the SEC, FINRA and other regulatory authorities. There has been a significant increase in federal and state regulatory activity relating to financial services companies. We may be subject to further related or unrelated inquiries or actions in the future.

There can be no assurance that our assessment of any claim or regulatory inquiry or proceeding will reflect the ultimate outcome and the outcome of any particular matter may be material to our operating results for a particular period.

It is not feasible to predict or determine the ultimate outcome of all legal or regulatory proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and regulatory matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, because of the inherent difficulty of predicting the outcome of any legal claims or regulatory inquiries or other matters, we cannot provide assurance as to the outcome of this or other pending or future matters, or if ultimately determined adversely to us, the loss, expense or other amounts or sanctions attributable to such matter, particularly where the matter presents complex or new or unsettled claims or legal theories. The resolution of such matter or matters, if unfavorable, could have a material adverse effect on our operating results.

While we maintain insurance that we believe is appropriate relative to our business and the potential claims and liabilities to which we may be exposed, we cannot be assured that insurance will cover many of our potential liabilities or losses, particularly any regulatory liabilities or penalties which are generally not covered by insurance. In addition, insurance coverage may become more costly and require higher deductibles or co-insurance arrangements, and may not be available to cover certain potential claims or liabilities we may incur. Should this occur, it would expose us to greater non-insured losses, increase our expenses and negatively impact our earnings.

Misconduct by our employees, sub-advisors and distribution partners is difficult to detect and deter and could harm our business, results of operations or financial condition.

Misconduct by our employees, sub-advisors or distribution partners could be determined to be violations of law resulting in regulatory sanctions or could result in serious reputational or financial harm. Misconduct can occur in each of our businesses and could include:

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We cannot always deter misconduct by our employees, sub-advisors and distribution partners, and the precautions we take to prevent and detect this activity may not be effective in all cases. Prevention and detection of misconduct among our sub-advisors and distribution partners, who are not employees of the Company, may be difficult. Misconduct by our employees, sub-advisors or distribution partners may have a material adverse effect on our business and operating results.

We are continuing to develop our own risk management processes and procedures, which may not be effective against all of our business risks.

As a stand-alone public company, we continue to develop our risk management processes and procedures. However, these processes and procedures may not be fully effective to address and guard against a constantly changing and highly complex regulatory environment, and we cannot be assured that our risk management approach will fully mitigate our exposure to all types of significant risk.

Intermediary distribution channels account for a majority of our sales and our assets under management.

Our operating model has historically relied on our intermediary distribution channels to account for a substantial portion of our sales and of our assets under management. Our success in our intermediary distribution channel depends upon our continuing to maintain strong relationships with our third-party intermediaries and with our other strategic distribution relationships. Any material reduction in these distribution relationships would impact the sales of our products, our assets under management and our revenues. In addition, these intermediaries generally offer their customers a significant array of investment products which are in addition to, and which compete with, our own investment products, and there is no assurance that these intermediaries or their customers may not favor competing investment products over those we offer. Further, consolidation in the financial services industry, of which our distribution channels are a part, could negatively impact future relationships and distribution channels.

Any failure to comply with established client investment guidelines or other contractual requirements could result in claims from clients and regulatory sanctions.

The agreements under which we manage assets often have established investment guidelines or other contractual requirements that we are required to comply with in providing our asset management services. Any failure to comply with these guidelines or other requirements could result in client claims, withdrawal of assets, and potential regulatory sanctions, any of which may negatively impact our revenues and earnings.

We conduct our asset management business in a number of different geographical locations.

Our affiliated managers who conduct our asset management services are located at various geographical locations throughout the United States. Their operations and services are coordinated and overseen from our headquarters. We have operated in this fashion for many years and we believe that we have been able to coordinate and appropriately oversee all of our asset management services through this business model. However, because we operate from more than one location, we could encounter technology, operational and oversight issues which potentially might not exist if we operated in one location.

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We could experience temporary business interruptions in our technology infrastructure and thereby incur substantial additional costs.

Our technology systems are critical to our operations and any failure or interruption of those systems or of our operations, whether resulting from technology or infrastructure breakdowns or defects or due to external causes such as fire or power disruptions, could result in financial loss and impact our reputation, growth and prospects.

Risk Factors Relating to Our Common Stock

Because of our size, there may be little institutional interest or trading volume in, or research analyst coverage of, our common stock.

Public companies with relatively small market capitalizations such as we have, often have difficulty generating institutional interest or trading volume in their stock. This illiquidity can result in relative price discounts as compared to industry peers or to the stock’s inherent value. It can also result in limited research analyst coverage, the absence of which makes it difficult for a company to establish and hold a market following. Accordingly, our size could lead to our stock trading at prices that are significantly lower than our estimate of its inherent value.

Our rights plan and applicable laws may discourage takeovers and business combinations that our stockholders might consider to be in their best interests.

We are subject to the provisions of Delaware law described below regarding business combinations with interested stockholders.

Section 203 of the Delaware General Corporation Law applies to a broad range of business combinations between a Delaware corporation and an interested stockholder. The Delaware law definition of a “business combination” includes mergers, sales of assets, issuances of voting stock and certain other transactions. An “interested stockholder” is defined as any person who owns, directly or indirectly, 15% or more of the outstanding voting stock of a corporation.

Section 203 prohibits a corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless:

In addition, in connection with the spin-off, we adopted a stockholders’ rights agreement in substantially the same form as that of our parent company. Under the agreement, if any person or group (other than Bank of Montreal and its controlled affiliates) acquires, or begins a tender or exchange offer that could result in such person acquiring, 15% or more of our common stock without approval by our board under specified circumstances, our other stockholders will have the right to purchase shares of our common stock, or shares of the acquiring company, at a substantial discount to the public market price.

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We cannot predict the price range or volatility of our common stock.

From time to time, the market price and volume of shares traded of companies in the asset management industry experience periods of significant volatility. Company-specific issues and general developments in the asset management industry or the economy may cause this volatility. The market price of our common stock may fluctuate in response to a number of events and factors, including:

In addition, broad market and industry fluctuations, as well as investor perception and the depth and liquidity of the market for our common stock, may adversely affect the trading price of our common stock, regardless of our actual operating performance.

Until an orderly market develops in our common stock, the price at which our common stock trades may fluctuate significantly and may be lower or higher than the price that would be expected for a more seasoned outstanding issue.

There may not be an active trading market for shares of our common stock.

There is a limited history of public trading of our common stock. The shares of our common stock are listed on the Nasdaq Global Market under the symbol “VRTS.” We cannot predict the extent to which investor interest in the Company will result in active trading in our common stock in the future or how liquid such a market will be, and there can be no assurance as to the price at which our common stock will continue to trade.

We may not pay dividends on our common stock.

We do not plan on initially paying any cash dividends on our common stock. However, the owners of our common stock may receive dividends when declared by our board from funds available for the payment of dividends. All decisions regarding the declaration and payment of dividends will be evaluated from time to time in light of our financial condition, earnings, growth prospects, other uses of cash, funding requirements, applicable law and other factors our board deems relevant.

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Risk Factors Relating to the Equity Investment

The agreements the Company has entered into in connection with the equity investment made by Harris Bankcorp contains restrictions that could limit our ability to obtain additional equity financing.

The approval of the holders of our Series B Convertible Preferred Stock is required to effect certain significant issuances of equity securities of the Company or any of its controlled subsidiaries. Such required approval may restrict our ability to carry out our business objectives, take advantage of opportunities such as acquisitions that could supplement or grow our business and could have a material adverse effect on our ability to service our debt and operate our business.

The voting power of the holders of our convertible preferred stock may discourage third party acquisitions of the Company at a premium.

We are required to obtain the approval of holders of our Series B Convertible Preferred Stock for any merger, consolidation, acquisition, business combination, sale of all or substantially all of the assets of the Company or its subsidiaries, or any similar transaction or pledge of assets, in certain circumstances. This may have the effect of discouraging offers to acquire control of the Company and may preclude holders of Company common stock from receiving any premium above market price for their shares that may otherwise be offered in connection with any attempt to acquire control of the Company.

For further information, restrictions and obligations concerning our Series B Convertible Preferred Stock, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Series B Convertible Preferred Stock”.

The additional financing right of the holders of our Series B Convertible Preferred Stock may increase the costs of any future equity financing.

Harris Bankcorp has an additional financing right until December 31, 2010 as long as it, or any of its affiliates, holds at least 10% of our outstanding common stock (including assuming conversion of our Series B Convertible Preferred Stock.) If the Company determines to raise equity financing for the purpose of financing our business (other than shares issued under any employee benefit plan, in connection with the acquisition of another company or pursuant to any stock split, stock dividend or recapitalization by the Company), we must offer Harris Bankcorp the initial opportunity to provide such financing up to a principal amount of $25 million of newly issued preferred stock. Any newly issued preferred stock would have the same terms as the Series B Convertible Preferred Stock, except with respect to the conversion price, which would be the lower of the current conversion price of the Series B Convertible Preferred Stock or the current per share volume-weighted average price of our common stock over the ten trading days immediately prior to the consummation of this additional financing right. As a result, should Harris Bankcorp choose to exercise the right, it could cause the financing to be more expensive than financing we might otherwise obtain.

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report contains statements, including under the captions “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “should,” or similar statements or variations of such terms.

Our forward-looking statements are based on a series of expectations, assumptions and projections about our Company, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, net cash inflows and outflows, operating cash flows, and future credit facilities, for all forward periods. All of our forward-looking statements are as of the date of this Annual Report only.

The Company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. The Company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Annual Report, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us which modify or impact any of the forward-looking statements contained in or accompanying this Annual Report, such statements or disclosures will be deemed to modify or supersede such statements in this Annual Report.

An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this Annual Report or included in our other periodic reports filed with the SEC could materially and adversely affect our operations, financial results, cash flows, prospects, and liquidity.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report, as well as the following risks and uncertainties: (a) the effects of recent adverse market and economic developments on all aspects of our business; (b) the poor performance of the securities markets; (c) the poor relative investment performance of some of our asset management strategies and the resulting outflows in our assets under management; (d) any lack of availability of additional financing on satisfactory terms or at all; (e) any inadequate performance of third-party relationships; (f) the withdrawal of assets from our management; (g) the impact of our separation from PNX; (h) our ability to attract and retain key personnel in a competitive environment; (i) the ability of independent trustees of our mutual funds and closed-end funds, intermediary program sponsors, managed account clients and institutional asset management clients to terminate their relationships with us; (j) the possibility that our goodwill or intangible assets could become further impaired, requiring a charge to earnings; (k) the strong competition we face in our business from mutual fund companies, banks and asset management firms most of which are larger than we are; (l) potential adverse regulatory and legal developments; (m) the difficulty of detecting misconduct by our employees, sub-advisors and distribution partners; (n) changes in accounting standards; (o) the difficulty in successfully completing future acquisitions; and (p) other risks and uncertainties described in this Annual Report or in any of our filings with the SEC.

Other factors which may impact our continuing operations, prospects, financial results and liquidity or which may cause actual results to differ from such forward-looking statements are discussed or included in the Company’s periodic reports filed with the SEC and are available on the our website at www.virtus.com under “Investor Relations”. You are urged to carefully consider all such factors.

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None.

Our principal offices are located at 100 Pearl St., 9th Floor, Hartford, CT 06103. In addition, our wholly owned asset management firms lease office space in Illinois, California and New York.

From time to time we are involved in litigation and arbitration, both as a defendant or as a plaintiff. In addition, various regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, securities laws, laws governing the activities of broker-dealers and other laws and regulations affecting our products. It is not feasible to predict or determine the ultimate outcome of all legal or regulatory proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and regulatory matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods. See “Risk Factors,” and Note 10 to our consolidated financial statements for additional information on outstanding litigation.

On December 31, 2008, PNX distributed 100% of our common stock to PNX shareholders (other than shares withheld to satisfy certain withholding conditions). Prior to the spin-off, the Company was an indirect majority-owned subsidiary of PNX and in such capacity PNX approved a number of matters related to the spin-off including the Company’s Amended and Restated Certificate of Incorporation, name change, and other spin-off related documents. See the Company’s Registration Statement in Form 10, as amended, filed with the Securities and Exchange Commission for more information.

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PART II

The Company’s common stock is traded on the NASDAQ Global Market under the trading symbol “VRTS.” Information regarding the high and low sales prices per share of common stock in 2008 and 2007 is not contained herein as the Company’s common stock did not begin trading on the NASDAQ Global Market until January 2, 2009.

The payment of any dividends on our common stock and the amount thereof would be determined by the board of directors depending upon, among other factors, the Company’s earnings, operations, financial condition, capital requirements, and general business outlook at the time payment is considered. Additional information regarding the Company’s payment of dividends on shares of Series B Convertible Preferred Stock is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Dividends on Series B Convertible Preferred Stock”.

The number of holders of record of the Company’s common stock at April 7, 2009 was 172,503.

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The following table sets forth our selected consolidated financial and other data at the dates and for the periods indicated. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report.

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The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report.

This discussion contains forward-looking statements that involve risks and uncertainties. See “Special Note About Forward-Looking Statements” for more information. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading “Risk Factors.”

Overview

Separation from The Phoenix Companies, Inc.

Prior to December 31, 2008, we were an indirect majority-owned subsidiary of The Phoenix Companies, Inc. (“PNX”). On February 7, 2008, PNX announced that its board of directors had determined to pursue the spin-off of the Company, the asset management business of PNX, excluding the net assets and business of the Company’s subsidiary, Goodwin. Goodwin, which historically had been a subsidiary of Virtus, was distributed to PNX in connection with the spin-off. On December 12, 2008, the PNX board of directors formally approved the spin-off and declared a dividend payable to each PNX holder of record at the close of business on the record date for the distribution of one share of our Virtus common stock for every 20 shares of PNX common stock. The distribution of 100% of our Virtus common stock to PNX stockholders (other than shares withheld to satisfy certain withholding obligations) was made on December 31, 2008. Following the spin-off, PNX does not have any ownership interest in the Company.

Our Business

We are a provider of investment management products and services to individuals and institutions. We operate a multi-manager asset management business, comprising a number of individual affiliated managers, each having its own distinct investment style, autonomous investment process and brand. We believe our customers value this approach, especially institutional customers who appreciate individual managers with distinctive cultures and styles.

Investors have an array of needs driven by factors such as market conditions, risk tolerance and investment goals. A key element of our business is offering a variety of investment styles and multiple disciplines to meet those needs. To that end, for our mutual funds, we supplement the investment capabilities of our affiliated managers with those of select unaffiliated sub-advisors. We do that by partnering with these sub-advisors whose strategies are not typically available to retail mutual fund customers.

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We provide our products in a number of forms and through multiple distribution channels. Our retail products include open-end mutual funds, closed-end funds and separately managed accounts. Our fund family of 49 open-end funds is distributed primarily through intermediaries. Our five closed-end funds trade on the New York Stock Exchange. Retail separately managed accounts are comprised of intermediary programs sponsored and distributed by unaffiliated brokerage firms, as well as private client programs, originated and maintained by our affiliated managers. We also manage institutional accounts for corporations, multi-employer retirement funds and foundations, endowments, special purpose funds and other types of institutions. Our earnings are primarily driven by asset-based investment management fees charged on these various products. These fees are based on a percentage of assets under management and are calculated using either daily or weekly average assets or assets at the end of the preceding quarter.

Our Profitability Drivers

Our profitability is primarily driven by the following factors:

Recent Market Developments

Financial markets have experienced unprecedented credit and liquidity issues as well as volatility and declines in the equity markets. Credit markets have suffered significantly, with many lenders and institutional investors reducing, and in some cases, ceasing to provide funding to borrowers, including other financial institutions. Additionally, concerns over increasing unemployment, fluctuating inflation and energy costs have contributed to diminished expectations for the economy and the financial markets going forward. These factors, combined with declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and fears of a deep and prolonged recession. As a result, there has been a severe impact on the global financial markets and economies.

This economic environment has had a direct impact on the actions of both retail and institutional investors. The continued erosion of the equity and fixed income markets has impacted the value of our assets under management which has resulted in lower fee revenues. The continuing turmoil in the equity and debt markets impacts investor confidence and investors favoring significantly lower investment risk. Our ability to attract investors and to grow our assets under management in the existing capital markets and economic environment, which is expected to continue through 2009 and possibly beyond, can be expected to impact our assets under management and our revenues, earnings and assets under management as well as our ability to forecast the future. In addition, because we experienced a significant decline in our assets under management in the 2008 third and fourth quarters and our assets under management at December 31, 2008 are significantly below our average assets under management for the 2008 full year, it is likely that we will experience a material decrease in revenue in 2009 absent significant improvement in the global economy and capital markets.

The decrease in our assets under management is driven in great part due to the equity markets, with the S&P 500 Index down 22.5% for the three-month period from September 30, 2008 through December 31, 2008. We have seen decreased investment inflows and an increase in redemptions of certain products.

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The value of the Company’s goodwill and intangibles assets is based on assets under management and the related revenue. As a result, significant and sustained declines in assets under management impact the valuation of these intangible assets.

Summary Analysis of Results of Operations

Year ended December 31, 2008 compared to year ended December 31, 2007. In 2008, we had a net loss of $528.0 million in 2008 compared with a net loss of $14.2 million in 2007. This was primarily driven by $559.3 million of pre-tax non-cash goodwill and intangible asset impairment charges. Revenues decreased by $47.9 million primarily due to a $12.8 billion decrease in average assets under management as a result of significant market declines in 2008 combined with net outflows during the year. Operating expenses, excluding the impairment charges, decreased $21.3 million mainly due to lower employment, distribution and amortization expenses.

Assets Under Management

Our total assets under management as of December 31, 2008 were $22.6 billion, which excludes $14.0 billion of fixed income assets managed by Goodwin that, as a result of the spin-off, are no longer managed by us as of December 31, 2008. The discussion and analysis of our assets under management excludes the Goodwin-managed assets from all years unless noted otherwise.

Assets Under Management by Product

The following table presents our assets under management by product for the periods indicated:

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Asset Flows by Product

The following table summarizes our asset flows by product for the periods indicated (excluding Goodwin):