Q2 EQUITY | DOMESTIC EQUITY 21 QUARTERLY COMMENTARY Virtus KAR Mid-Cap Growth Fund A: PHSKX (92828N767) | C: PSKCX (92828N742) | I: PICMX (92828N734) | R6: VRMGX (92828N254)

MARKET REVIEW With the competitive advantages we saw in Autohome eroding Equities continued to advance in the second quarter. The S&P and the end market increasingly soft, we sold our position. 500® Index appreciated 8.55%, bringing the year-to-date return > Declines accelerated this quarter for New Oriental Education, to 15.25%. Large-capitalization growth stocks outpaced value which provides private educational services in China, as it stocks, with the Russell 1000® Growth Index up 11.93% and became increasingly clear that the Chinese government is the Russell 1000® Value Index up 5.21%. Year to date, however, unhappy with the state of the tutoring market. The government large-cap value stocks stayed ahead of growth stocks, returning is looking to dramatically reduce the need and amount of 17.05% versus 12.99%, respectively. Small-capitalization after-school tutoring allowed in the country, and it is likely stocks, as measured by the Russell 2000® Index, lagged their to improve school curriculum, ban tutoring on weekends larger counterparts for the quarter, returning 4.29%, but were and holidays, limit the volume and type of advertising the still slightly ahead for the year to date, returning 17.54%. institutions are allowed to do, and curtail how far in advance tuition can be paid. If taken into effect, this industry will likely PORTFOLIO OVERVIEW never be the same. The Fund delivered positive performance in the quarter, returning 7.65% (Class I), but underperformed the Russell Midcap® Growth PURCHASES AND SALES Index, which returned 11.07%. Poor stock selection and an During the quarter, we purchased two companies for the overweight in the consumer discretionary sector and poor stock portfolio: lighting and building management firm Acuity Brands selection and an underweight in the communication services and orthopedic medical device company Treace Medical sector detracted from performance. An underweight in the Concepts. We sold our position in Autohome (discussed above). materials sector and good stock selection in the information OUTLOOK technology sector contributed positively to performance. Despite elevated stock valuations, we believe investors should DocuSign and Bill.com were the biggest contributors to stay the course and remain invested. Price-to-earnings (P/E) performance during the quarter. ratios are higher than normal, but this is not unusual when earnings > DocuSign’s shares were strong for most of 2020 and hit a new are rapidly recovering, and corporate earnings were strong in the high in June after the e-signature technology company reported first quarter. Ironically, P/E ratios may decline as the earnings potentially its best-ever quarter, with accelerated growth and recovery unfolds. However, as long as earnings growth exceeds strong revenue gains, and operating margins well ahead of multiple contractions, we believe returns should be favorable for consensus expectations. investors. As always, our focus remains on high-quality > Cloud-based financial software company Bill.com is moving regardless of the current economic regime. We believe competitive up-market, leveraging partnerships with many of the largest protections and differentiation are the key investment metrics financial institutions in the world and building differentiated that matter the most over the long term. integrations with some of the most important software providers for mid-market customers. The company continues to grow Related Resources: average revenue per user from adoption of higher margin KAR Q2 Market Review and Outlook: Mid-Year Observations cross border (for international vendors) and virtual card (check alternative) offerings. Autohome and New Oriental Education & Technology were the biggest detractors from performance in the quarter. > China-based online auto platform Autohome has been struggling for nearly three years now from a myriad of factors and strategy pivots, including heavy promotion spending in 2019 against a backdrop of soft auto demand and a complete change in pricing strategy in 2020. Over the last year, competition has intensified for its core customers. Furthermore, electric vehicles (EV) are gaining popularity in China. EV buying decisions revolve more around aesthetic features than performance features, which is a focus of many of the content creators on Autohome. Additionally, EV original equipment manufacturers are increasingly selling direct to consumers, which impacts Autohome’s traditional dealer customers. Q2 Virtus KAR Mid-Cap Growth Fund 21 QUARTERLY COMMENTARY

INVESTMENT ADVISER PORTFOLIO MANAGER TOP TEN HOLDINGS % Fund Virtus Investment Advisers, Inc. Douglas S. Foreman, CFA MercadoLibre Inc. 5.40 Industry start date: 1986 Bill.com Holdings Inc. 4.37 INVESTMENT SUBADVISER Start date as Fund Portfolio DocuSign Inc. 3.83 Manager: 2012 Kayne Anderson Rudnick Investment Avalara Inc. 3.27 Chris Armbruster, CFA Management, LLC SiteOne Landscape Supply Inc. 3.24 Industry start date: 2004 Start date as Fund Portfolio Trade Desk Inc./The 2.99 Manager: 2020 Fair Isaac Corp. 2.74 Okta Inc. 2.57 Goosehead Insurance Inc. 2.45 Gartner Inc. 2.41 Holdings are subject to change.

AVERAGE ANNUAL TOTAL RETURNS (%) as of 06/30/21 TOP FIVE CONTRIBUTORS % Contribution Fund Class I Index n n DocuSign Inc. 1.14 Bill.com Holdings Inc. 0.97

43.77 Avalara Inc. 0.62

34.39 Gartner Inc. 0.62 28.72 28.89 Pool Corp. 0.56 22.39 20.52 16.86 15.13 12.14

11.88 TOP FIVE DETRACTORS % Contribution 11.07 10.44 7.65 Autohome Inc. -0.45 2.76 New Oriental Education & QTD YTD 1 Year 3 Year 5 Year 10 Year Since Technology Group Inc. -0.33 Inception (09/13/07) Trip.com Group Ltd. -0.20 Performance data quoted represents past performance. Past performance does not guarantee future DraftKings Inc. -0.19 results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth nCino Inc. -0.18 more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit virtus.com for performance data current to the most recent month end. This % Contribution: Absolute weighted contribution. share class has no sales charges and is not available to all investors. Other share classes have sales To obtain the top/bottom holdings calculation charges. See virtus.com for details. methodology, call 800-243-4361. The fund class gross expense ratio is 1.05% and reflects the direct and indirect expenses paid by the Fund. The gross expense ratio minus the indirect expenses incurred by the underlying funds in which the Fund invests is 1.03%. Average annual total return is the annual compound return for the indicated period and reflects the change in share price and the reinvestment of all dividends and capital gains. Returns for periods of one year or less are cumulative returns. Index: The Russell Midcap® Growth Index is a market capitalization-weighted index of medium capitalization, growth-oriented stocks of U.S. companies. The index is calculated on a total return basis with dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

Notes on Risk: Equity Securities: he market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Market Volatility: Local, regional, or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the portfolio and its investments, including hampering the ability of the portfolio manager(s) to invest the portfolio’s assets as intended. Prospectus: For additional information on risks, please see the fund’s prospectus. The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities. Please consider a Fund’s investment objectives, risks, charges, and expenses carefully before investing. For this and other information about any Virtus Fund, contact your financial professional, call 800-243-4361, or visit virtus.com for a prospectus or summary prospectus. Read it carefully before investing. Not insured by FDIC/NCUSIF or any federal government agency. No bank guarantee. Not a deposit. May lose value. Distributed by VP Distributors, LLC, member FINRA and subsidiary of Virtus Investment Partners, Inc. 2236 07-21 © 2021 Virtus Mutual Funds