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.

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:

• Investment management fees earned on assets under management. Depending on the product, these fees can be based on average daily or weekly market values, end of the preceding quarter market values, or outstanding principal values of the assets being managed. Assets under management are principally driven by the following factors:

• sales less redemptions (net flows); and

• absolute and relative performance.

• Operating expenses, including:

• base compensation;

• variable incentive compensation;

• distribution expenses; and

• administrative expenses.

• Amortization and impairment of intangibles, principally related to acquired investment contracts.

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.

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:



                                                    As of December 31,
                                                  2008      2007     2006
               ($ in billions)
               Retail assets
               Mutual fund assets
               Money market funds                $   4.7   $  6.2   $  5.7
               Long-term open-end funds              6.7     11.0     11.3
               Closed-end funds                      4.0      5.1      4.9

               Total mutual fund assets             15.4     22.3     21.9

               Separately managed accounts
               Intermediary sponsored programs       1.4      2.7      3.8
               Private client accounts               1.6      2.7      3.0

               Total managed account assets          3.0      5.4      6.8

               Total retail assets                  18.4     27.7     28.7


               Institutional assets
               Institutional accounts                3.4      9.3     10.7
               Structured finance products           0.8      3.4      3.6

               Total institutional assets            4.2     12.7     14.3

               Total (1)                         $  22.6   $ 40.4   $ 43.0

(1) Excludes Goodwin assets as follows:

                    Institutional assets           $  1.9   $  1.6
                    Structured finance products       0.2      0.4
                    PNX general account assets       13.0     13.1

                    Total Goodwin-managed assets   $ 15.1   $ 15.1

Asset Flows by Product

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



                                                          Years Ended
                                                          December 31,
                                                  2008        2007       2006
           ($ in billions)
           Retail Products
           Mutual Funds
           Beginning balance                     $  22.3     $ 21.9     $  12.1
           Sales                                     2.5        3.6         2.6
           Redemptions                              (3.5 )     (3.9 )      (2.8 )

           Net flows                                (1.0 )     (0.3 )      (0.2 )
           Market appreciation (depreciation)       (4.3 )      0.3         1.5
           Change in cash management products       (1.5 )      0.5        (1.4 )
           Acquisitions (dispositions) / Other      (0.1 )     (0.1 )       9.9

           Change in assets under management        (6.9 )      0.4         9.8

           Ending balance                        $  15.4     $ 22.3     $  21.9

           Separately Managed Accounts
           Beginning balance                     $   5.4     $  6.8     $   9.4
           Sales                                     1.0        1.2         1.1
           Redemptions                              (1.9 )     (2.6 )      (4.3 )

           Net flows                                (0.9 )     (1.4 )      (3.2 )
           Market appreciation (depreciation)       (1.2 )      0.1         0.6
           Acquisitions (dispositions) / Other      (0.3 )     (0.1 )        -

           Change in assets under management        (2.4 )     (1.4 )      (2.6 )

           Ending balance                        $   3.0     $  5.4     $   6.8

           Institutional Products
           Beginning balance                     $   9.3     $ 10.7     $  11.6
           Sales                                     0.5        1.1         1.5
           Redemptions                              (5.7 )     (1.9 )      (3.1 )

           Net flows                                (5.2 )     (0.8 )      (1.6 )
           Market appreciation (depreciation)       (0.5 )      0.4         1.0
           Change in cash management products       (0.2 )     (0.1 )      (0.1 )
           Acquisitions (dispositions) / Other        -        (0.9 )      (0.2 )

           Change in assets under management        (5.9 )     (1.4 )      (0.9 )

           Ending balance                        $   3.4     $  9.3     $  10.7

           Structured Finance Products
           Beginning balance                     $   3.4     $  3.6     $   2.0
           Sales                                      -         2.3         2.4
           Redemptions                              (1.2 )     (0.3 )      (0.9 )

           Net flows                                (1.2 )      2.0         1.5
           Market appreciation (depreciation)       (1.4 )     (2.2 )       0.1

           Change in assets under management        (2.6 )     (0.2 )       1.6

           Ending balance                        $   0.8     $  3.4     $   3.6

           Total
           Beginning balance                        40.4       43.0        35.1
           Sales                                     4.0        8.2         7.6
           Redemptions                             (12.3 )     (8.7 )     (11.1 )

           Net flows                                (8.3 )     (0.5 )      (3.5 )
           Market appreciation (depreciation)       (7.4 )     (1.4 )       3.2
           Change in cash management products       (1.7 )      0.4        (1.5 )
           Acquisitions (dispositions) / Other      (0.4 )     (1.1 )       9.7

           Change in assets under management       (17.8 )     (2.6 )       7.9

           Ending balance                        $  22.6     $ 40.4     $  43.0

Assets Under Management by Investment Category

The following table summarizes our assets under management by investment
category (excluding Goodwin):



                                               As of December 31,
                                             2008      2007     2006
                    ($ in billions)
                    Investment Categories
                    Equity assets           $   9.8   $ 16.7   $ 19.2
                    Fixed income assets         8.1     17.5     18.1
                    Money market assets         4.7      6.2      5.7

                    Total                   $  22.6   $ 40.4   $ 43.0

Year ended December 31, 2008 compared to year ended December 31, 2007. At December 31, 2008, we managed $22.6 billion in total assets representing a decrease of $17.8 billion from the $40.4 billion managed at December 31, 2007. Net outflows were $8.3 billion and market depreciation was $7.4 billion. The remaining decrease was primarily the result of the net change in our money market assets. Of the net outflows during the year, $5.2 billion was in institutional accounts of which $3.7 billion related to a terminated relationship with one institutional client, providing advisory services to the general account of a non-affiliated insurance company. The fees earned on these assets were approximately five basis points or approximately $1.9 million per year. Of the $7.4 billion market depreciation, $4.3 billion related to our mutual funds, $1.2 billion related to our separately managed accounts and $1.9 billion related to our institutional accounts of which $1.4 billion was structured finance products. The market depreciation across all asset groups in 2008 was primarily the result of the unprecedented decline in the securities markets.

Year ended December 31, 2007 compared to year ended December 31, 2006. At December 31, 2007, we managed $40.4 billion in total assets, a decrease of $2.6 billion from December 31, 2006. This decrease was driven by unfavorable net flows in our institutional and separately managed account products as well as market depreciation in structured finance products. Net outflows in institutional and separately managed accounts were related to underperformance in certain investment strategies. Market depreciation in structured finance product was driven by the significant deterioration of the fixed income market in the second half of 2007. Partially offsetting these decreases in assets under management was $1.0 billion of market appreciation, excluding structured finance products, and positive net flows in structured finance products due to three new products issued during the year. These issuances occurred in the first half of 2007 before significant declines in value of the underlying securities took hold. Despite a decrease in our long-term open-end mutual fund assets at period end, we had sales of $3.6 billion in 2007. However, these increases were offset by higher redemptions in funds affected by sector preferences, such as real estate.

Average Fee Earning Assets Under Management and Average Basis Points

The following table summarizes average fee earning assets under management and
average management fee basis points (excluding Goodwin):



                                                    As of December 31,

                                     Average Fees        Average Fee Earning Assets
                                    Earned in 2008             ($ in billions)
                                   Expressed in BPs      2008          2007       2006

   Products
   Money market mutual funds (1)                  5   $      5.5    $      6.2   $  4.3
   Long-term mutual funds (1)                    48         14.3          17.0     14.2
   Separately managed accounts                   48          4.4           6.4      8.1
   Institutional                                 28          5.6          10.1     11.1
   Structured finance product                    20          2.2           5.1      2.3

   Total                                         35   $     32.0    $     44.8   $ 40.0

(1) Average fees earned for money market and long-term mutual funds are net of non-affiliated sub-advisory fees.

The average fee earning assets under management and average fees earned expressed in basis points presented in the table above are intended to provide information in the analysis of our asset based revenue and distribution expenses. Money market and long-term mutual fund fees are calculated based on either average daily net assets or average weekly net assets. Separately managed accounts and institutional fees are generally calculated based on end of the preceding quarter's asset values. Structured finance product fees are calculated based on a combination of the underlying cash flows and the principal value of the product.

Results of Operations

Summary Financial Data



                                         Years Ended December 31,                     Increase/(Decrease)
                                      2008          2007         2006         2008 vs. 2007         2007 vs. 2006
($ in millions)
Results of Operations
Investment management fees          $   127.6      $ 159.0      $ 164.0      $         (31.4 )     $          (5.0 )
Other revenue                            50.7         67.2         54.6                (16.5 )                12.6

Total revenues                          178.3        226.2        218.6                (47.9 )                 7.6

Operating expenses                      175.7        190.5        198.0                (14.8 )                (7.5 )
Goodwill and intangible asset
impairment                              559.3          0.3         32.5                559.2                 (32.2 )
Intangible asset amortization            25.1         30.1         32.0                 (6.5 )                (1.9 )

Total expenses                          760.1        220.9        262.5                537.9                 (41.6 )

Operating (loss) income                (581.8 )        5.3        (43.9 )             (585.8 )                49.2
Other income (expense)                   (7.1 )       (0.3 )        1.5                 (6.8 )                (1.8 )
Interest expense, net                    (1.7 )      (25.1 )      (32.0 )               23.4                   6.9

Income (loss) before income
taxes                                  (590.6 )      (20.1 )      (74.4 )             (569.2 )                54.3
Income tax benefit (1)                  (61.5 )       (5.9 )      (26.8 )              (55.4 )               (20.9 )

Net income (loss)                      (529.1 )      (14.2 )      (47.6 )             (513.8 )               (33.4 )
Preferred Stockholder Dividends          (0.5 )

Net income (loss) available to
common stockholders                 $  (529.6 )    $ (14.2 )    $ (47.6 )    $        (513.8 )     $         (33.4 )

(1) Includes increases to the valuation allowance of $95.2 million, $0.9 million and $6.8 million for the years ended December 31, 2008, December 31, 2007 and December 31, 2006, respectively.

Revenues

The decrease in revenues in 2008 as compared to 2007 was primarily a result of a decrease in average assets under management due in large part to the declines in the securities markets in 2008 and to net outflows of assets. The increase in revenues in 2007 as compared to 2006 was primarily a result of an increase in mutual fund investment management, distribution and service fees resulting from higher average mutual fund assets under management. Revenues by source were as follows:

                                         Years Ended December 31,                   Increase/(Decrease)
                                      2008          2007        2006        2008 vs. 2007          2007 vs. 2006
($ in millions)
Investment management fees
Mutual Funds                        $    71.1     $   84.9     $  76.3     $         (13.8 )      $           8.6
Separately managed accounts              21.1         29.5        35.7                (8.4 )                 (6.2 )
Institutional accounts                   18.4         24.9        34.1                (6.5 )                 (9.2 )
Structured finance product                5.0          8.1         8.0                (3.1 )                  0.1

Third-party management fees             115.6        147.4       154.1               (31.8 )                 (6.7 )
PNX general account                      12.0         11.6         9.9                 0.5                    1.7

Total investment management
fees                                    127.6        159.0       164.0               (31.3 )                 (5.0 )
Distribution and service fees            30.2         36.5        29.8                (6.3 )                  6.7
Administration and transfer
agent fees                               18.3         23.3        19.8                (5.0 )                  3.5
Other income and fees                     2.2          7.4         5.0                (5.3 )                  2.4

Total revenues                      $   178.3     $  226.2     $ 218.6     $         (47.9 )      $           7.6

Investment Management Fees

Year ended December 31, 2008 compared to year ended December 31, 2007. Net investment management fees decreased primarily due to a decrease in average fee earning assets under management. Average fee earning assets under management decreased primarily as a result of market depreciation combined with redemptions in all products during 2008. Net redemptions, including Goodwin managed assets for which management fees were earned in 2008, were $8.5 billion of which $5.2 billion were from institutional products. During 2008, a terminated relationship with an institutional client resulted in a $3.7 billion redemption. The client was a general account mandate for a non-affiliated insurance company for which the fees earned were approximately five basis points. Our open-end mutual funds, separately managed accounts and structured finance products experienced net redemptions of $0.9 billion, $0.9 billion and $1.2 billion, respectively. Each of our products experienced market depreciation during 2008 due to the dramatic declines in the markets experienced in 2008.

Year ended December 31, 2007 compared to year ended December 31, 2006. Investment management fees decreased primarily due to a decline in fees earned on separately managed accounts and institutional accounts. These fees decreased due to a one-time final accelerated $5.2 million fee in 2006 from an early termination of an institutional contract and also due to net outflows of assets resulting from underperforming large cap growth strategies that have since been largely redeemed. This decrease was partially offset by an increase in mutual fund investment management fees, as we earned fees from the Insight Funds for the full year in 2007 as compared to only a post-adoption partial year in 2006. The Insight Funds were a family of eighteen mutual funds for whom we acquired the rights to advise, distribute and administer from Harris Investment Management, Inc. in May, 2006. (For more information on this acquisition, see Note 3 to our consolidated financial statements.) Additionally, fees earned from managing closed-end funds increased $2.6 million due to secondary or preferred offerings as well as market appreciation. Fees earned from managing PNX's general account increased $1.7 million primarily due to a change in the fee structure.

Distribution and Service Fees

Year ended December 31, 2008 compared to year ended December 31, 2007. Distribution and service fees, which are asset-based fees collected on open-end mutual funds, declined due to lower assets under management during 2008 as compared to the prior year. The 17% decrease in these fees is reflective of the 16% decrease in our average long-term mutual funds from 2007 to 2008. The decrease in fees was substantially offset by a corresponding decrease in trail commissions, which are a component of distribution expenses. Trail commissions represent asset-based payments to our distribution partners based on a percentage of our assets under management.

Year ended December 31, 2007 compared to year ended December 31, 2006. Distribution and service fees for open-end mutual funds are earned based upon average assets under management. Average mutual fund assets increased by 25% from 2006 to 2007 in large part due to the adoption of the Insight Funds in May 2006.

Administration and Transfer Agent Fees

Year ended December 31, 2008 compared to year ended December 31, 2007. Administration and transfer agent fees represent fees collected from our open-end mutual funds for fund administration and transfer agent services. Fund administration fees decreased $2.5 million due to a decline in average assets under management upon which these fees are based. Transfer agent fees decreased $2.1 million due to a decline in the number of accounts and a change in the contract with the service provider which also reduced our cost to provide these . . .