UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-22473
Virtus Stone Harbor Emerging Markets Income Fund
(Exact name of registrant as specified in charter)
101 Munson
Street
Greenfield, MA 01301-9683
(Address of principal executive offices) (Zip code)
Jennifer
Fromm, Esq.
Vice President, Chief Legal Officer, Counsel and Secretary for Registrant
One Financial Plaza
Hartford, CT 06103-2608
(Name and address of agent for service)
Registrant’s telephone number, including area code: (866) 270-7788
Date of fiscal year end: November 30
Date of reporting period: November 30, 2023
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to
stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose
the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any
suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
| Item 1. |
Reports to Stockholders. |
| |
(a) |
The Report to Shareholders is attached herewith. |
Virtus Stone Harbor Emerging Markets Income Fund
Not FDIC Insured • No Bank Guarantee • May Lose
Value
Table of Contents
Virtus Stone Harbor Emerging Markets Income
Fund
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1
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2
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6
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7
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9
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18
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19
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20
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21
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23
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24
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41
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42
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44
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50
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52
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56
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To Virtus Stone
Harbor Emerging Markets Income Fund Shareholders:
I am pleased to present this annual report,
which reviews the performance of your Fund for the 12 months ended November 30, 2023.
Effective December 15, 2023,
the Virtus Stone Harbor Emerging Markets Total Income Fund (NYSE: EDI) was reorganized into your Fund (EDF). The two funds had substantially similar investment objectives and strategies, and the same fund management. The merger resulted in a higher
combined level of assets that may offer reduced costs, economies of scale, and increased efficiencies.
The fiscal year saw a generalized recovery from the volatility
that characterized much of 2022. But investor sentiment swung between optimism and pessimism depending on the outlook for inflation and interest rates. For the 12 months ended November 30, 2023, the Fund’s net asset value (NAV) returned
21.20%, and its market price returned 22.14%. For the same period, the Fund’s composite benchmark, which is composed of the three sectors of emerging markets (EM) debt, returned 8.50%. The performance of the underlying sectors was 6.42% for
hard currency sovereign debt, as represented by the JPMorgan EMBI Global Diversified Index, 11.56% for local currency sovereign debt, as represented by the JPMorgan GBI-EM Global Diversified Index, and 7.47% for corporate debt, as represented by the
JPMorgan CEMBI Broad Diversified Index.
Please call our
customer service team at 866-270-7788 if you have questions about your account or require assistance. We appreciate your business and remain committed to your long-term financial success.
Sincerely,
George R.
Aylward
President, Chief Executive Officer, and Trustee
Virtus Stone Harbor Emerging Markets Income Fund
January 2024
Refer to the Manager’s Discussion section for your
Fund’s performance. Performance data quoted represents past results. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. Investing involves risk, including the
risk of loss of principal invested.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
November 30, 2023
About the
Fund:
Virtus Stone Harbor Emerging
Markets Income Fund’s (NYSE: EDF) (the “Fund”) investment objective is to maximize total return, which consists of income on its investments and capital appreciation. The Fund normally will invest at least 80% of its net assets
(plus any borrowings for investment purposes) in emerging markets securities. There is no guarantee that the Fund will achieve its investment objective.
The use of leverage currently enables the
Fund to borrow at short-term rates with the expectation of investing at higher yields on its investments. During the period, the Fund utilized short-term reverse repurchase agreements through which it borrowed money by selling securities under the
obligation to repurchase them at a later date at a fixed price. The Fund’s management team adjusted borrowing levels to reflect the team’s outlook on emerging markets risk, increasing borrowings when it felt opportunities had improved
and reducing borrowings when, in the team’s judgment, macroeconomic risk had risen. At November 30, 2023, the Fund had borrowings of approximately $14 million, which represented about 16% of the Fund’s managed assets.
Manager Comments – Stone Harbor Investment Partners (Stone
Harbor)
Stone Harbor is a global credit
specialist with expertise in emerging and developed markets debt. With three decades of informed experience allocating risk in complex areas of the fixed income markets, Stone Harbor manages global credit portfolios for institutional clients
around the world. The following commentary is provided by the respective portfolio team at Stone Harbor and covers the Fund’s portfolio for the year ended November 30, 2023.
How did the markets perform during the Fund’s fiscal year
ended November 30, 2023?
Lower
inflation readings in many countries in both developed markets (DMs) and emerging markets (EMs) were the key focus during the 12-month period ended November 30, 2023. Following an initial period of market volatility in early 2023 – marked by
high levels of inflation, banking sector stress, and uncertainties associated with the U.S. debt ceiling – macroeconomic dynamics began to show improvement. Inflation levels across EMs and DMs moved lower over 2023. Throughout the period,
central banks continued to monitor incoming economic data, as market participants watched for a potential change in the direction of policy interest rates, particularly by the U.S. Federal Reserve (the Fed).
While the narrative around easing U.S.
inflation and the end to the Fed’s hiking cycle dominated market expectations by the end of the fiscal year, inflation moderation and downward policy rate adjustments had begun earlier in many EMs. In addition, improved fundamentals in many
emerging economies, supported by fiscal strength and prudent policymaking, helped to produce primary fiscal surpluses or modest deficits, as well as stabilize debt-to-gross domestic product (GDP) levels. Ultimately, many EMs were better-positioned
to respond to external shocks, and even lead the economic cycle relative to DMs. Other more fragile emerging nations were supported by the International Monetary Fund (IMF) and other multilateral organizations. In November 2023, the IMF board
approved plans to enhance lending resources to member countries.
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 7.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
Against this backdrop, the yield on the U.S.
10-year Treasury closed at 4.37% at the end of the reporting period after reaching a period high of 4.95% in late October 2023 amid uncertainty about U.S. interest rates. The U.S. dollar retreated against the euro and EM currencies appreciated, on
average.
What factors affected the
Fund’s performance during fiscal year?
The Fund’s total return on net asset
value (NAV) for the 12 months ended November 30, 2023, was 21.20%. For the same period, the Fund’s composite benchmark, which is comprised of the three sectors of emerging markets debt, returned 8.50%. Total returns of indexes for
emerging markets hard currency sovereign and corporate debt were 6.42% and 7.47%, as represented by the JPMorgan EMBI Global Diversified Index and the JPMorgan CEMBI Broad Diversified Index, respectively, for the 12-month period. The average yield
of local currency sovereign debt, as represented by the JPMorgan GBI-EM Global Diversified Index, declined 0.38% to 6.48%. Local currency sovereign debt outperformed, posting a total return of 11.56%. A key driver of the Fund’s performance was
positive returns from country selection in hard currency sovereign debt.
At the country level, the largest
contributors to performance were U.S. dollar-denominated sovereign debt in Argentina, El Salvador, and Pakistan. Other positive contributors to performance included local currency sovereign debt exposure in Mexico, Brazil, and Colombia, as well as
U.S. dollar-denominated corporate debt in Mexico, Ghana, and Indonesia.
Among the largest detractors from the
Fund’s performance were allocations to U.S. dollar-denominated sovereign bonds in Ecuador, Ethiopia, and Peru. Local currency sovereign debt exposures in South Africa also detracted from performance, as did hard currency corporate debt
exposures in China and Nigeria.
The
Fund uses various derivative instruments in an effort to manage credit risk, interest rate risk, and foreign exchange risk, and to efficiently gain certain investment exposures. These derivative positions may increase or decrease the Fund’s
exposure to these risks. For the reporting period, derivatives contributed 3.27% to Fund performance.
Level distribution practice
The Fund has a practice of seeking to
maintain a specified level of monthly distributions to shareholders, which may be changed at any time. As a result of this practice, the Fund may pay distributions in excess of the Fund’s taxable net investment income and net realized gains.
During the most recent fiscal year, the practice did not have a material impact on the Fund’s investment strategy. Please refer to the financial highlights and federal income tax information note in this report for further information about
the Fund’s distributions and its effect on net asset value.
The preceding information is the opinion of
portfolio management only through the end of the period of the report as stated on the cover. Any such opinions are subject to change at any time based upon market conditions and should not be relied upon as investment advice.
The Fund’s portfolio holdings are
subject to change and may not be representative of the portfolio managers’ current or future investment decisions. The mention of individual securities held by the Fund is for informational purposes only and should not be construed as a
recommendation to purchase or sell any securities. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional.
For information
regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
Average Annual Total Returns1 for periods ended 11/30/23
| |
1
Year |
5
Years |
10
Years |
| Market
Value1,2 |
22.14%
|
-4.54%
|
0.56%
|
| Net
Asset Value1,2 |
21.20%
|
-0.93%
|
0.52%
|
| Composite
Index1,3 |
8.50%
|
1.54%
|
2.05%
|
| J.P.
Morgan GBI-EM Global Diversified Index1,3 |
11.56%
|
0.77%
|
-0.28%
|
| J.P.
Morgan CEMBI Broad Diversified Index1,3 |
7.47%
|
2.72%
|
3.48%
|
| J.P.
Morgan EMBI Global Diversified Index1,3 |
6.42%
|
1.00%
|
2.79%
|
All returns represent past
performance which is no guarantee of future results. Current performance may be higher or lower than the performance shown. Please visit Virtus.com for performance data current to the most recent month-end.
Growth of $10,000
for periods ended 11/30
This graph shows the change in value of a hypothetical
investment of $10,000 in the Fund for the years indicated. For comparison, the same investment is shown in the indicated index.
|
1 |
Past
performance is not indicative of future results. Current performance may be lower or higher than performance in historical periods. |
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 7.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
|
2 |
Total
return on market value is calculated assuming a purchase of common shares on the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to
be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total return on market value is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not
reflected. Total return on market value does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. Total return on net asset value uses the same methodology, but with use of net asset value
for the beginning, ending and reinvestment values. |
|
3 |
The
indexes are unmanaged and not available for direct investment; therefore, their performance does not reflect the expenses associated with active management of an actual portfolio. |
For information
regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
November 30, 2023
The
following tables present the portfolio holdings within certain industry or countries as a
percentage of total investments (excluding reverse repurchase agreements and
swaps contracts) at November 30, 2023.
Asset
Allocations
| Foreign
Government Securities |
|
53%
|
| Corporate
Bonds and Notes |
|
39
|
| Exploration
& Production |
22%
|
|
| Financial
& Lease |
6
|
|
| Electric
|
5
|
|
| Technology
|
2
|
|
| All
other Corporate Bonds and Notes |
4
|
|
| Short-Term
Investment |
|
5
|
| Credit
Linked Notes |
|
3
|
| Total
|
|
100%
|
| |
|
|
Country
Weightings
| Mexico
|
27%
|
| Colombia
|
7
|
| Nigeria
|
7
|
| Indonesia
|
6
|
| Brazil
|
5
|
| United
States |
5
|
| Angola
|
4
|
| Other
|
39
|
| Total
|
100%
|
| |
|
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
KEY INVESTMENT TERMS (Unaudited)
November 30, 2023
Composite Index: 33% J.P. Morgan EMBI Global Diversified / 33%
J.P. Morgan CEMBI Broad Diversified / 33% J.P. Morgan GBI-EM Global Diversified
The composite index consists of 33.33% J.P. Morgan EMBI Global
Diversified Index, 33.33% J.P. Morgan CEMBI Broad Diversified Index and 33.33% J.P. Morgan GBI-EM Global Diversified Index. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct
investment.
Designated Activity Company
(“DAC”)
A new company type that was created
as part of the New Companies Act 2014, which came into force on the 1st June 2015 in Ireland. This limited company type is applicable to those companies who wish to outline and define a specific type of business in their Constitution, rather than
have unlimited powers as per the LTD company type.
Federal Reserve (the “Fed”)
The central bank of the U.S., responsible for controlling money
supply, interest rates and credit with the goal of keeping the U.S. economy and currency stable. Governed by a seven-member board, the system includes 12 regional Federal Reserve Banks, 25 branches, and all national and state banks that are part of
the system.
Gross Domestic Product
(“GDP”)
The GDP represents the market value
of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs, and the foreign trade balance.
Hard Currency
Hard currency refers to a currency that is generally issued by
developed countries, globally traded, and seen as politically and economically stable. Generally, when a fund invests in hard currency sovereign debt, that debt is denominated in U.S. Dollars.
International Monetary Fund (“IMF”)
The International Monetary Fund is a major financial agency of
the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. The IMF works to achieve sustainable growth and prosperity for all of its member countries by supporting economic
policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.
J.P. Morgan CEMBI Broad Diversified Index
The J.P. Morgan CEMBI Broad Diversified Index tracks total
returns of U.S. dollar-denominated debt instruments issued by corporate entities in emerging market countries and consists of an investable universe of corporate bonds. The minimum amount outstanding required is $300 million for the J.P. Morgan
CEMBI Broad Diversified. The J.P. Morgan CEMBI Broad Diversified limits the weights of those index countries with larger corporate debt stocks by only including a specified portion of these countries’ eligible current face amounts of debt
outstanding. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
J.P. Morgan EMBI Global Diversified Index
The J.P. Morgan EMBI Global Diversified Index (EMBI Global
Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. The index limits the weights of those index countries with larger
debt stocks by only including specified portions of these countries’ eligible current face amounts outstanding. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct
investment.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
KEY INVESTMENT TERMS (Unaudited)
(Continued)
November 30, 2023
J.P. Morgan GBI-EM Global Diversified Index
The J.P. Morgan GBI-EM Global Diversified Index consists of
regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. The index is calculated on a total return
basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Joint Stock Company (“JSC”)
A joint-stock company is a business entity in which shares of
the company’s stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are able to transfer their shares to others without any effects
to the continued existence of the company.
London
Interbank Offered Rate (“LIBOR”)
A benchmark
rate that some of the world’s leading banks charge each other for short-term loans and that serves as the first step to calculating interest rates on various loans throughout the world.
Secured Overnight Financing Rate (“SOFR”)
A broad measure of the cost of borrowing cash overnight
collateralized by U.S. Treasury securities.
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS
November 30, 2023
($ reported in thousands)
| |
Par
Value(1) |
|
Value
|
| Foreign
Government Securities—60.7% |
| Angola
—4.9% |
|
|
| Republic
of Angola |
|
|
|
144A
9.500%, 11/12/25(2) |
$ 1,075
|
|
$ 1,046
|
144A
8.250%, 5/9/28(2) |
478
|
|
423
|
144A
9.375%, 5/8/48(2) |
278
|
|
213
|
RegS
8.250%, 5/9/28(3) |
850
|
|
752
|
Republic
of Angola Via Avenir II B.V. (6 month LIBOR + 4.500%) RegS
10.163%, 12/7/23(3)(4)(5) |
173
|
|
173
|
Republic
of Angola Via Avenir Issuer II Ireland DAC RegS
6.927%, 2/19/27(3)(4) |
1,110
|
|
1,029
|
| |
|
|
3,636
|
| |
|
|
|
| |
| Argentina—1.7%
|
|
|
Provincia
De Buenos Aires RegS
6.375%, 9/1/37(3)(5) |
2,416
|
|
888
|
Republic
of Argentina
3.625%, 7/9/35(5) |
1,090
|
|
351
|
| |
|
|
1,239
|
| |
|
|
|
| |
| Brazil—4.9%
|
|
|
Brazil
Notas do Tesouro Nacional Series F
10.000%, 1/1/33 |
18,800
BRL |
|
3,632
|
| Colombia—4.2%
|
|
|
Republic
of Colombia
4.500%, 3/15/29(6) |
1,660
|
|
1,486
|
Titulos
De Tesoreria
7.250%, 10/18/34 |
8,275,000
COP |
|
1,598
|
| |
|
|
3,084
|
| |
|
|
|
| |
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Ecuador—2.5%
|
|
|
| Republic
of Ecuador |
|
|
|
144A
6.000%, 7/31/30(2)(5) |
$ 3,561
|
|
$ 1,638
|
RegS
6.000%, 7/31/30(3)(5) |
436
|
|
201
|
| |
|
|
1,839
|
| |
|
|
|
| |
| Egypt—4.4%
|
|
|
Arab
Republic of Egypt 144A
4.750%, 4/16/26(2) |
3,879
EUR |
|
3,272
|
| El
Salvador—4.9% |
|
|
| Republic
of El Salvador |
|
|
|
RegS
5.875%, 1/30/25(3) |
718
|
|
660
|
RegS
6.375%, 1/18/27(3) |
3,039
|
|
2,562
|
RegS
8.625%, 2/28/29(3) |
340
|
|
289
|
RegS
8.250%, 4/10/32(3) |
118
|
|
97
|
| |
|
|
3,608
|
| |
|
|
|
| |
| Gabon—3.9%
|
|
|
| Republic
of Gabon |
|
|
|
144A
6.950%, 6/16/25(2)(6) |
2,080
|
|
1,908
|
RegS
6.950%, 6/16/25(3) |
1,069
|
|
981
|
| |
|
|
2,889
|
| |
|
|
|
| |
| Indonesia—4.0%
|
|
|
Indonesia
Government Bond
8.375%, 4/15/39 |
40,300,000
IDR |
|
2,953
|
| Iraq—1.1%
|
|
|
Republic
of Iraq RegS
5.800%, 1/15/28(3) |
844
|
|
775
|
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Ivory
Coast—1.0% |
|
|
| Ivory
Coast Government International Bond |
|
|
|
RegS
5.250%, 3/22/30(3) |
489
EUR |
|
$ 464
|
RegS
5.875%, 10/17/31(3) |
330
EUR |
|
310
|
| |
|
|
774
|
| |
|
|
|
| |
| Kenya—0.3%
|
|
|
Republic
of Kenya RegS
6.875%, 6/24/24(3) |
$ 225
|
|
217
|
| Lebanon—0.2%
|
|
|
| Lebanese
Republic |
|
|
|
| 6.400%,
5/26/23(7) |
848
|
|
46
|
RegS
8.250%, 4/12/21(3)(7) |
2,237
|
|
123
|
| |
|
|
169
|
| |
|
|
|
| |
| Mexico—4.7%
|
|
|
Mex
Bonos Desarr
7.750%, 5/29/31 |
66,150
MXN |
|
3,477
|
| Mongolia—0.2%
|
|
|
Mongolia
Government International Bond 144A
8.650%, 1/19/28(2) |
156
|
|
160
|
| Mozambique—0.9%
|
|
|
Republic
of Mozambique 144A
9.000%, 9/15/31(2)(5) |
879
|
|
701
|
| Nigeria—7.1%
|
|
|
| Republic
of Nigeria |
|
|
|
144A
6.500%, 11/28/27(2) |
1,339
|
|
1,185
|
144A
6.125%, 9/28/28(2)(6) |
697
|
|
591
|
144A
8.375%, 3/24/29(2) |
401
|
|
368
|
144A
7.696%, 2/23/38(2)(6) |
860
|
|
650
|
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Nigeria—continued
|
|
|
RegS
8.375%, 3/24/29(3)(6) |
$ 2,200
|
|
$ 2,019
|
RegS
8.747%, 1/21/31(3) |
450
|
|
405
|
| |
|
|
5,218
|
| |
|
|
|
| |
| Pakistan—1.4%
|
|
|
| Islamic
Republic of Pakistan |
|
|
|
144A
6.000%, 4/8/26(2) |
530
|
|
363
|
RegS
8.250%, 4/15/24(3) |
750
|
|
704
|
| |
|
|
1,067
|
| |
|
|
|
| |
| Papua
New Guinea —1.1% |
|
|
Papua
New Guinea Government International Bond RegS
8.375%, 10/4/28(3)(6) |
867
|
|
804
|
| Senegal—0.4%
|
|
|
Republic
of Senegal 144A
6.250%, 5/23/33(2) |
365
|
|
303
|
| South
Africa—3.1% |
|
|
| Republic
of South Africa |
|
|
|
| 6.500%,
2/28/41 |
26,900
ZAR |
|
857
|
| 8.750%,
2/28/48 |
36,800
ZAR |
|
1,436
|
| |
|
|
2,293
|
| |
|
|
|
| |
| Sri
Lanka—0.2% |
|
|
Republic
of Sri Lanka 144A
7.850%, 3/14/29(2)(7) |
300
|
|
150
|
| Tunisia—0.4%
|
|
|
Tunisian
Republic 144A
6.375%, 7/15/26(2) |
360
EUR |
|
264
|
| Turkey—1.2%
|
|
|
Republic
of Turkiye
9.875%, 1/15/28 |
804
|
|
863
|
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Venezuela—0.5%
|
|
|
Republic
of Venezuela RegS
9.000%, 5/7/23(3)(7) |
$ 2,250
|
|
$
345 |
| Zambia—1.5%
|
|
|
| Republic
of Zambia |
|
|
|
144A
5.375%, 9/20/24(2)(7) |
124
|
|
67
|
144A
8.970%, 7/30/27(2)(6)(7) |
865
|
|
523
|
RegS
8.970%, 7/30/27(3)(6)(7) |
900
|
|
545
|
| |
|
|
1,135
|
| |
|
|
|
| |
Total
Foreign Government Securities
(Identified Cost $48,418) |
|
44,867
|
| |
|
|
|
| |
| Corporate
Bonds and Notes—44.0% |
| Brazil—0.6%
|
|
|
MC
Brazil Downstream Trading S.a.r.l. 144A
7.250%, 6/30/31(2)(6) |
551
|
|
414
|
| Colombia—3.4%
|
|
|
Empresas
Publicas de Medellin ESP RegS
7.625%, 9/10/24(3) |
2,700,000
COP |
|
637
|
Gran
Tierra Energy, Inc. 144A
9.500%, 10/15/29(2) |
2,144
|
|
1,838
|
| |
|
|
2,475
|
| |
|
|
|
| |
| Ghana—2.4%
|
|
|
Tullow
Oil plc RegS
7.000%, 3/1/25(3)(6) |
1,912
|
|
1,743
|
| India—1.7%
|
|
|
Adani
Electricity Mumbai Ltd. RegS
3.949%, 2/12/30(3) |
905
|
|
706
|
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| India—continued
|
|
|
Adani
Green Energy Ltd. RegS
4.375%, 9/8/24(3) |
$ 600
|
|
$ 571
|
| |
|
|
1,277
|
| |
|
|
|
| |
| Indonesia—2.5%
|
|
|
| Theta
Capital Pte Ltd. |
|
|
|
| RegS
8.125%, 1/22/25(3) |
935
|
|
779
|
| RegS
6.750%, 10/31/26(3)(6) |
1,550
|
|
1,101
|
| |
|
|
1,880
|
| |
|
|
|
| |
| Kazakhstan—1.3%
|
|
|
Development
Bank of Kazakhstan JSC 144A
10.950%, 5/6/26(2) |
506,000
KZT |
|
939
|
| Macau—1.1%
|
|
|
Melco
Resorts Finance Ltd. RegS
5.375%, 12/4/29(3) |
480
|
|
398
|
Studio
City Finance Ltd. 144A
5.000%, 1/15/29(2) |
500
|
|
388
|
| |
|
|
786
|
| |
|
|
|
| |
| Mexico—25.5%
|
|
|
| Banco
Mercantil del Norte S.A. |
|
|
|
| 144A
5.875%(2)(6)(8) |
1,268
|
|
1,135
|
| RegS
6.750%(3)(8) |
770
|
|
750
|
Cemex
SAB de C.V. 144A
9.125% (2)(6)(8) |
793
|
|
827
|
| Petroleos
Mexicanos |
|
|
|
| 7.470%,
11/12/26 |
45,240
MXN |
|
2,265
|
| 7.690%,
1/23/50(6) |
3,629
|
|
2,402
|
| RegS
6.700%, 2/16/32(3) |
171
|
|
132
|
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Mexico—continued
|
|
|
Poinsettia
Finance Ltd. RegS
6.625%, 6/17/31(3) |
$ 12,162
|
|
$ 9,978
|
Sixsigma
Networks Mexico S.A. de C.V. 144A
7.500%, 5/2/25(2)(6) |
1,541
|
|
1,382
|
| |
|
|
18,871
|
| |
|
|
|
| |
| Nigeria—0.4%
|
|
|
IHS
Holding Ltd. 144A
6.250%, 11/29/28(2) |
400
|
|
318
|
| Peru—0.4%
|
|
|
| Petroleos
del Peru S.A. |
|
|
|
| RegS
4.750%, 6/19/32(3) |
250
|
|
174
|
| RegS
5.625%, 6/19/47(3) |
225
|
|
133
|
| |
|
|
307
|
| |
|
|
|
| |
| South
Africa—0.9% |
|
|
Eskom
Holdings SOC Ltd. 144A
8.450%, 8/10/28(2) |
701
|
|
691
|
| Turkey—0.8%
|
|
|
Aydem
Yenilenebilir Enerji AS 144A
7.750%, 2/2/27(2)(6) |
655
|
|
577
|
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| Uzbekistan—1.5%
|
|
|
Uzauto
Motors AJ 144A
4.850%, 5/4/26(2) |
$ 1,285
|
|
$
1,113 |
| Venezuela—0.5%
|
|
|
| Petroleos
de Venezuela S.A. |
|
|
|
| RegS
9.000%, 11/17/21(3)(7) |
2,000
|
|
230
|
| RegS
12.750%, 2/17/22(3)(7) |
975
|
|
135
|
| |
|
|
365
|
| |
|
|
|
| |
| Vietnam—1.0%
|
|
|
Mong
Duong Finance Holdings B.V. 144A
5.125%, 5/7/29(2)(6) |
821
|
|
754
|
Total
Corporate Bonds and Notes
(Identified Cost $36,122) |
|
32,510
|
| |
|
|
|
| |
| Credit
Linked Notes—3.9% |
| Iraq—3.9%
|
|
|
| Republic
of Iraq |
|
|
|
(Counterparty:
BOA)
3.211%, 1/1/28(5)(9) |
442,832
JPY |
|
2,684
|
(Counterparty:
BOA)
3.340%, 1/6/28(5)(9) |
24,532
JPY |
|
149
|
Total
Credit Linked Notes
(Identified Cost $4,805) |
|
2,833
|
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| |
Par
Value(1) |
|
Value
|
| |
|
|
|
| |
Total
Long-Term Investments—108.6%
(Identified Cost $89,345) |
|
$
80,210 |
| |
Shares
|
|
| Short-Term
Investment—5.2% |
| Money
Market Mutual Fund—5.2% |
| Dreyfus
Government Cash Management Fund - Institutional Shares (seven-day effective yield 5.237%)(10) |
3,860,409
|
3,860
|
Total
Short-Term Investment
(Identified Cost $3,860) |
3,860
|
| |
|
|
| |
TOTAL
INVESTMENTS—113.8%
(Identified Cost $93,205) |
$
84,070 |
| Other
assets and liabilities, net—(13.8)% |
(10,164)
|
| NET
ASSETS—100.0% |
$
73,906 |
| Abbreviations:
|
| CDS
|
Credit
Default Swap |
| DAC
|
Designated
Activity Company |
| JSC
|
Joint Stock
Company |
| LIBOR
|
London
Interbank Offered Rate |
| Footnote
Legend: |
|
(1) |
Par
Value disclosed in foreign currency is reported in thousands. |
|
(2) |
Security
exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2023, these securities amounted to a value
of $24,201 or 32.7% of net assets. |
|
(3) |
Regulation
S security. Security is offered and sold outside of the United States; therefore, it is exempt from registration with the SEC under Rules 903 and 904 of the Securities Act of 1933. |
|
(4) |
This Note
was issued for the sole purpose of funding a leveraged loan between the issuer and the borrower. As the credit risk for this security lies solely with the borrower, the name represented here is that of the borrower. |
|
(5) |
Variable
rate security. Rate disclosed is as of November 30, 2023. Information in parenthesis represents benchmark and reference rate for each security. Certain variable rate securities are not based on a published reference rate and spread but are
determined by the issuer or agent and are based on current market conditions, or, for mortgage-backed securities, are impacted by the individual mortgages which are paying off over time. These securities do not indicate a reference rate and spread
in their descriptions. |
|
(6) |
All
or a portion is segregated as collateral for reverse repurchase agreements. On November 30, 2023, securities valued at $18,255 were pledged as collateral for reverse repurchase agreements. |
|
(7) |
Security
in default; no interest payments are being received. |
|
(8) |
No
contractual maturity date. |
|
(9) |
The
value of this security was determined using significant unobservable inputs and is reported as a Level 3 security in the Fair Value Hierarchy table located after the Schedule of Investments. |
|
(10) |
Shares
of this fund are publicly offered, and its prospectus and annual report are publicly available. |
For information regarding the abbreviations, see the Key
Investment Terms starting on page 7.
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| Counterparties:
|
|
| BCLY
|
Barclays
|
| BOA
|
Bank of
America |
| JPM
|
JPMorgan
Chase Bank N.A. |
| Foreign
Currencies: |
|
| BRL
|
Brazilian
Real |
| COP
|
Colombian
Peso |
| EUR
|
Euro
|
| IDR
|
Indonesian
Rupiah |
| JPY
|
Japanese
Yen |
| KZT
|
Kazakhstani
Tenge |
| MXN
|
Mexican
Peso |
| ZAR
|
South
African Rand |
| Reverse
Repurchase Agreements as of November 30, 2023 were as follows: |
| Counterparty
|
Interest
Rate |
Acquisition
Date* |
Amount
|
| JPM
|
5.60%
|
11/02/23
|
$
(595) |
| JPM
|
5.65
|
11/02/23
|
(661)
|
| JPM
|
5.65
|
11/02/23
|
(342)
|
| JPM
|
5.70
|
11/02/23
|
(1,983)
|
| JPM
|
5.75
|
11/02/23
|
(327)
|
| JPM
|
5.80
|
11/02/23
|
(648)
|
| JPM
|
5.80
|
11/02/23
|
(663)
|
| JPM
|
5.80
|
11/02/23
|
(444)
|
| JPM
|
5.80
|
11/02/23
|
(809)
|
| JPM
|
5.80
|
11/02/23
|
(416)
|
| JPM
|
5.80
|
11/02/23
|
(480)
|
| JPM
|
5.80
|
11/02/23
|
(400)
|
| JPM
|
5.90
|
11/02/23
|
(225)
|
| JPM
|
5.90
|
11/02/23
|
(995)
|
| JPM
|
5.90
|
11/02/23
|
(1,023)
|
| JPM
|
5.95
|
11/02/23
|
(1,236)
|
| JPM
|
6.05
|
11/02/23
|
(477)
|
| JPM
|
6.10
|
11/02/23
|
(819)
|
| JPM
|
6.10
|
11/02/23
|
(1,629)
|
| Total
|
|
|
$(14,172)
|
| Footnote
Legend: |
|
* |
All
agreements can be terminated by either party on demand at value plus accrued interest. |
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
| Over-the-counter
credit default swaps - sell protection(1) outstanding as of November 30, 2023 were as follows: |
| Reference
Entity |
Payment
Frequency |
Counterparty
|
Fixed
Rate |
Expiration
Date |
Notional
Amount(2) |
|
Value
|
|
Premiums
Paid
(Received) |
|
Unrealized
Appreciation |
|
Unrealized
Depreciation |
Republic
of Argentina 5 Year CDS,
CCC- /CCCu(3),* |
Quarterly
|
BCLY
|
5.000%
|
12/20/25
|
$11,200
|
|
$(6,154)
|
|
$(1,450)
|
|
$—
|
|
$(4,704)
|
| Total
|
|
|
|
|
|
|
$(6,154)
|
|
$(1,450)
|
|
$—
|
|
$(4,704)
|
|
Footnote Legend: |
|
(1) |
If
the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery
of the referenced obligation or underlying investments comprising the referenced index or (ii) pay a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced
obligation or underlying investments comprising the referenced index. |
|
(2) |
The
maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
|
(3) |
Based
on Republic of Argentina Sovereign Debt Obligation, USD Denominated 1.00% fixed coupon, 07/09/2029 maturity. |
|
* |
S&P
/ Morningstar DBRS, respectively |
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
The following table summarizes the value of the
Fund’s investments as of November 30, 2023, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| |
Total
Value at
November 30, 2023 |
|
Level
1
Quoted Prices |
|
Level
2
Significant
Observable
Inputs |
|
Level
3
Significant
Unobservable
Inputs |
| Assets:
|
|
|
|
|
|
|
|
| Debt
Instruments: |
|
|
|
|
|
|
|
| Foreign
Government Securities |
$
44,867 |
|
$
— |
|
$
44,867 |
|
$
— |
| Corporate
Bonds and Notes |
32,510
|
|
—
|
|
32,510
|
|
—
|
| Credit
Linked Notes |
2,833
|
|
—
|
|
—
|
|
2,833
|
| Money
Market Mutual Fund |
3,860
|
|
3,860
|
|
—
|
|
—
|
| Total
Assets |
84,070
|
|
3,860
|
|
77,377
|
|
2,833
|
| Liabilities:
|
|
|
|
|
|
|
|
| Other
Financial Instruments:(1) |
|
|
|
|
|
|
|
| Over-the-Counter
Credit Default Swap |
(6,154)
|
|
—
|
|
(6,154)
|
|
—
|
| Reverse
Repurchase Agreements |
(14,172)
|
|
—
|
|
(14,172)
|
|
—
|
| Total
Liabilities |
(20,326)
|
|
—
|
|
(20,326)
|
|
—
|
| Total
Investments |
$
63,744 |
|
$3,860
|
|
$
57,051 |
|
$2,833
|
|
(1) |
Other
financial instruments are derivative instruments reflected in the Schedule of Investments. Swaps are reported at value. For liabilities arising from reverse repurchase agreements, the carrying amount approximates fair value due to the short-term
maturity of these financial instruments. |
There were no transfers into or out of Level 3 related
to securities held at November 30, 2023.
Some of
the Fund’s investments that were categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in
a significantly lower or higher value of Level 3 investments.
See Notes to Financial Statements
Virtus Stone Harbor
Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in
thousands)
The following is a reconciliation of assets of the Fund
for Level 3 investments for which significant unobservable inputs were used to determine fair value.
| |
Total
|
|
Corporate
Bonds
And Notes |
|
Credit
Linked
Notes |
| Investments
in Securities |
|
|
|
|
|
| Balance
as of November 30, 2022: |
$
3,632 |
|
$
108(a) |
|
$ 3,524
|
| Accrued
discount/(premium) |
71
|
|
—
|
|
71
|
| Net
realized gain (loss) |
(384)
|
|
(85)
|
|
(299)
|
| Net
change in unrealized appreciation (depreciation)(b) |
762
|
|
464
|
|
298
|
| Purchases
|
—
(c) |
|
—
(c) |
|
—
|
| Sales
(d) |
(1,248)
|
|
(487)
|
|
(761)
|
| Balance
as of November 30, 2023 |
$
2,833 |
|
$
— |
|
$ 2,833
|
(a) Includes internally fair
valued security currently priced at zero ($0).
(b)
The net change in unrealized appreciation (depreciation) on investments still held at November 30, 2023, was $298.
(c) Amount is less than $500 (not in thousands).
(d) Includes paydowns on securities.
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2023
(Reported in thousands except shares and per share amounts)
| Assets
|
|
|
Investment in securities at value (Identified cost
$93,205)
|
$
84,070 |
|
Foreign currency at value (cost
$—(a))
|
—
(a) |
|
Cash
|
2,309
|
|
Cash collateral pledged for
swaps
|
6,242
|
| Receivables
|
|
|
Investment securities sold
|
533
|
|
Dividends and
interest
|
1,769
|
|
Tax reclaims
|
3
|
|
Prepaid Trustees’
retainer
|
—
(a) |
|
Prepaid expenses and other assets (Note
4)
|
16
|
|
Total
assets
|
94,942
|
| Liabilities
|
|
|
Borrowings through reverse repurchase agreements (Note
8)
|
14,172
|
|
Over-the-counter swaps at value (Swap premium
$1,450)
|
6,154
|
| Payables
|
|
|
Investment securities
purchased
|
369
|
|
Investment advisory fees (Note
4)
|
72
|
|
Interest on reverse repurchase
agreements
|
67
|
|
Professional fees
|
66
|
|
Administration and accounting
fees
|
8
|
|
Trustee deferred compensation plan (Note
4)
|
5
|
|
Other accrued
expenses
|
123
|
|
Total
liabilities
|
21,036
|
|
Net
Assets
|
$
73,906 |
| Net
Assets Consist of: |
|
|
Common stock ($0.001 par value; unlimited shares
authorized)
|
$
17 |
|
Capital paid in on shares of beneficial
interest
|
224,724
|
|
Total distributable earnings (accumulated
losses)
|
(150,835)
|
|
Net
Assets
|
$
73,906 |
|
Common Shares
Outstanding
|
17,351,391
|
|
Net Asset Value Per
Share(b)
|
$
4.26 |
|
(a) |
Amount
is less than $500 (not in thousands). |
|
(b) |
Net
Asset Value Per Share is calculated using unrounded net assets. |
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED
November 30, 2023
($ reported in thousands)
| Investment
Income |
|
|
Interest
|
$
10,774 |
|
Dividends
|
106
|
|
Foreign taxes withheld
|
(41)
|
|
Total investment
income
|
10,839
|
| Expenses
|
|
|
Investment advisory
fees
|
932
|
|
Administration and accounting
fees
|
107
|
|
Professional fees
|
243
|
|
Printing fees and expenses
|
107
|
|
Transfer agent fees and
expenses
|
30
|
|
Trustees’ fees and
expenses
|
19
|
|
Custodian fees
|
11
|
|
Miscellaneous
expenses
|
83
|
|
Total expenses before interest
expense
|
1,532
|
|
Interest expense on reverse repurchase agreements (Note
8)
|
1,156
|
|
Total expenses after interest
expense
|
2,688
|
|
Net investment income
(loss)
|
8,151
|
| Net
Realized and Unrealized Gain (Loss) on Investments |
|
| Net
realized gain (loss) from: |
|
|
Investments
|
(10,493)
|
|
Foreign currency
transactions
|
30
|
|
Foreign capital gains
tax
|
(—)
(1) |
|
Forward foreign currency exchange
contracts
|
(300)
|
|
Swaps
|
(4,149)
|
| Net
change in unrealized appreciation (depreciation) on: |
|
|
Investments
|
13,792
|
|
Foreign currency
transactions
|
5
|
|
Forward foreign currency exchange
contracts
|
172
|
|
Swaps
|
6,718
|
|
Net realized and unrealized gain (loss) on
investments
|
5,775
|
|
Net increase (decrease) in net assets resulting from
operations
|
$
13,926 |
|
(1) |
Amount
is less than $500 (not in thousands). |
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
($
reported in thousands)
| |
Year
Ended
November 30, 2023 |
|
Year
Ended
November 30, 2022 |
Increase
(Decrease) In Net Assets
From Operations |
|
|
|
|
Net investment income
(loss)
|
$
8,151 |
|
$
8,808 |
|
Net realized gain
(loss)
|
(14,912)
|
|
(12,323)
|
|
Net change in unrealized appreciation
(depreciation)
|
20,687
|
|
(19,311)
|
|
Increase (decrease) in net assets resulting from
operations
|
13,926
|
|
(22,826)
|
| From
Dividends and Distributions to Shareholders |
|
|
|
|
Net investment income and net realized
gains
|
(11,445)
|
|
(1,512)
|
|
Return of
capital
|
(951)
|
|
(10,711)
|
|
Dividends and Distributions to
Shareholders
|
(12,396)
|
|
(12,223)
|
| From
Capital Share Transactions |
|
|
|
|
Reinvestment of distributions resulting in the issuance of common stock (249,112 and 241,484 shares,
respectively)
|
1,083
|
|
1,208
|
|
Increase (decrease) in net assets from capital
transactions
|
1,083
|
|
1,208
|
|
Net increase (decrease) in net
assets
|
2,613
|
|
(33,841)
|
| Net
Assets |
|
|
|
|
Beginning of
period
|
71,293
|
|
105,134
|
|
End of
period
|
$
73,906 |
|
$
71,293 |
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
STATEMENT OF CASH FLOWS
YEAR ENDED November 30,
2023
($ reported in thousands)
| Increase
(Decrease) in cash |
|
| Cash
flows provided by (used for) operating activities: |
|
|
Net increase (decrease) in net assets resulting from operations
|
$
13,926 |
| Adjustments
to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities: |
|
|
Proceeds from sales and paydowns of long-term
investments
|
73,521
|
|
(Increase) Decrease in investment securities sold
receivable
|
1,458
|
|
Purchases of long-term
investments
|
(63,832)
|
|
Increase (Decrease) in investment securities purchased
payable
|
(409)
|
|
Net (purchases) or sales of short-term
investments
|
5,955
|
|
Net change in unrealized (appreciation)/depreciation on
investments
|
(13,792)
|
|
Net change in unrealized (appreciation)/depreciation of forward foreign currency exchange
contracts
|
(172)
|
|
Net realized (gain)/loss on
investments
|
10,493
|
|
Net realized (gain)/loss on sales of investments from changes in the foreign exchange
rates
|
8
|
|
Amortization of premiums and inflation income and accretion of discounts
on
investments
|
(3,313)
|
|
(Increase) Decrease in due from
broker
|
76
|
|
(Increase) Decrease in tax reclaims
receivable
|
3
|
|
(Increase) Decrease in dividends and interest
receivable
|
11
|
|
(Increase) Decrease in prepaid expenses and other
assets
|
(11)
|
|
(Increase) Decrease in prepaid Trustees’
retainer
|
6
|
|
Increase (Decrease) in interest payable on reverse repurchase
agreements
|
(29)
|
|
Increase (Decrease) in over-the-counter swaps at
value
|
(9,644)
|
|
Increase (Decrease) in variation margin payable on swap
contracts
|
48
|
|
Increase (Decrease) in affiliated expenses
payable
|
(8)
|
|
Increase (Decrease) in non-affiliated expenses
payable
|
13
|
|
Cash provided by (used for) operating
activities
|
14,308
|
| Cash
provided (used for) financing activities: |
|
|
Cash receipts from reverse repurchase
agreements
|
156,394
|
|
Cash payments for reverse repurchase
agreements
|
(170,822)
|
|
Cash distributions paid to
shareholders
|
(11,313)
|
|
Cash provided by (used for) financing
activities
|
(25,741)
|
|
Net increase (decrease) in
cash
|
(11,433)
|
|
Restricted and unrestricted cash at beginning of
period
|
19,984
|
|
Restricted and unrestricted cash at end of
period
|
$
8,551 |
| |
|
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
STATEMENT OF CASH FLOWS (Continued)
YEAR ENDED November 30,
2023
($ reported in thousands)
| Supplemental
cash flow information: |
|
|
Reinvestment of dividends and
distributions
|
$
1,083 |
|
Cash paid during the period for interest expense on reverse repurchase
agreements
|
$
1,185 |
| |
|
| Reconciliation
of restricted and unrestricted cash at the end of period to the statement of assets and liabilities: |
|
|
Cash and foreign currency at
value
|
$
2,309 |
|
Cash collateral pledged for
swaps
|
6,242
|
| |
$8,551
|
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
|
|
Year
Ended November 30, |
| |
2023
|
|
2022
|
|
2021
|
|
2020
|
|
2019
|
| PER
SHARE DATA: |
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
period
|
$
4.17 |
|
$
6.24 |
|
$
7.04 |
|
$
8.91 |
|
$
10.58 |
| Income
(loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
Net investment income
(loss)(1)
|
0.47
|
|
0.52
|
|
0.60
|
|
0.64
|
|
0.89
|
|
Net realized and unrealized gain
(loss)
|
0.34
|
|
(1.87)
|
|
(0.52)
|
|
(1.08)
|
|
(0.40)
|
|
Total from investment
operations
|
0.81
|
|
(1.35)
|
|
0.08
|
|
(0.44)
|
|
0.49
|
| Dividends
and Distributions to Shareholders: |
|
|
|
|
|
|
|
|
|
|
Net investment
income
|
(0.66)
|
|
(0.09)
|
|
(0.57)
|
|
(0.28)
|
|
(0.76)
|
|
Return of
capital
|
(0.06)
|
|
(0.63)
|
|
(0.31)
|
|
(1.15)
|
|
(1.40)
|
|
Total dividends and distributions to
shareholders
|
(0.72)
|
|
(0.72)
|
|
(0.88)
|
|
(1.43)
|
|
(2.16)
|
|
Net asset value, end of
period
|
$
4.26 |
|
$
4.17 |
|
$
6.24 |
|
$
7.04 |
|
$
8.91 |
|
Market value, end of
period
|
$
4.38 |
|
$
4.24 |
|
$
6.65 |
|
$
7.40 |
|
$
13.18 |
|
Total return, net asset
value(2)
|
21.20%
|
|
(22.31)%
|
|
0.36%
|
|
(3.32)%
|
|
4.45%
|
|
Total return, market
value(2)
|
22.14%
|
|
(25.98)%
|
|
0.66%
|
|
(32.92)%
|
|
29.86%
|
| RATIOS/SUPPLEMENTAL
DATA: |
|
|
|
|
|
|
|
|
|
|
Ratio of total expenses after interest expense to average net
assets(3)
|
3.70%
(4) |
|
2.95%
|
|
2.37%
|
|
2.56%
|
|
1.97%
|
|
Ratio of net investment income (loss) to average net
assets
|
11.21%
(4) |
|
10.55%
|
|
8.57%
|
|
9.04%
|
|
8.88%
|
|
Portfolio turnover
rate
|
76%
|
|
37%
|
|
47%
|
|
127%
|
|
107%
|
|
Net assets, end of period
(000’s)
|
$73,906
|
|
$71,293
|
|
$105,134
|
|
$117,235
|
|
$146,213
|
|
Borrowings, end of period
(000’s)
|
$14,172
|
|
$28,600
|
|
$
45,481 |
|
$
46,000 |
|
$
8,976 |
|
Asset coverage, per $1,000 of
borrowings(5)
|
$
6,215 |
|
$
3,493 |
|
$
3,312 |
|
$
3,545 |
|
$
17,290 |
| |
|
|
(1) |
Calculated
using average shares outstanding. |
|
(2) |
Total return
on market value is calculated assuming a purchase of common shares on the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total return on market value is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not reflected.
Total return on market value does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. Total return on net asset value uses the same methodology, but with use of net asset value for the
beginning, ending and reinvestment values. |
|
(3) |
Ratio of
total expenses before interest expense to average net assets was 2.11%, 2.03%, 1.96%, 1.99% and 1.59% for the years ended November 30, 2023, 2022, 2021, 2020 and 2019, respectively. |
|
(4) |
The
Fund incurred some non-recurring reorganization expenses in 2023. When excluding these costs, the ratio of total expenses after interest expense to average net assets would be 3.33% and the ratio of net investment income to average net assets
would be 11.58%. |
|
(5) |
Represents
value of net assets plus the borrowings at the end of the period divided by the borrowings at the end of the period multiplied by $1,000. |
See Notes to Financial Statements
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 2023
Note 1. Organization
Virtus Stone Harbor Emerging Markets Income
Fund (the “Fund”) is a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund was organized as a Massachusetts business trust on
December 22, 2010 pursuant to an Agreement and Declaration of Trust governed by the laws of the Commonwealth of Massachusetts (the “Declaration of Trust”). The Fund’s investment objective is outlined in the Manager’s
Discussion of Fund Performance pages. There is no guarantee that the Fund will achieve its investment objective.
Note 2. Significant Accounting Policies
The Fund is an investment company that
follows the accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its financial statements and for derivatives, included in Note 3 below. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and those differences could be significant.
| A.
|
Security Valuation |
| |
The
Fund’s Board of Trustees has designated the investment adviser as the valuation designee to perform fair valuations pursuant to Rule 2a-5 under the Investment Company Act of 1940. The Fund utilizes a fair value hierarchy which prioritizes the
inputs to valuation techniques used to measure fair value into three broad levels. The Fund’s policy is to recognize transfers into or out of Level 3 at the end of the reporting period. |
•
Level 1 – quoted prices in active markets for identical securities (security types generally include listed equities).
•
Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
•
Level 3 – prices determined using significant unobservable inputs (including the investment adviser’s Valuation Committee’s own assumptions in determining the fair value of investments).
A description of the valuation techniques
applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities are valued at the
official closing price (typically last sale) on the exchange on which the securities are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Illiquid, restricted
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
equity securities and illiquid private placements are
internally fair valued by the investment adviser’s Valuation Committee, and are generally categorized as Level 3 in the hierarchy.
Certain non-U.S. securities may be fair
valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (“NAV”) at the close of regular trading on the New York Stock
Exchange (“NYSE”) (generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases, the Fund fair values non-U.S. securities using an independent pricing service which considers the
correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, Exchange Traded Funds (“ETFs”), and certain indexes, as
well as prices for similar securities. Such fair valuations are categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent
basis.
Debt instruments, including
convertible bonds, and restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing
that considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, activity of the underlying equities, and current day trade information, as well as dealer supplied
prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments, such as mortgage-backed and asset-backed securities may also incorporate collateral analysis and utilize cash flow models for valuation and
are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are
generally categorized as Level 2 in the hierarchy. Debt instruments that are internally fair valued by the investment adviser’s Valuation Committee are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options and
futures, that are actively traded are valued at the last posted settlement price from the exchange where they are principally traded and are categorized as Level 1 in the hierarchy. Over-the-counter (“OTC”) derivative contracts, which
include forward currency contracts, swaps, swaptions, options and equity linked instruments, are valued based on model prices provided by independent pricing services or from dealer quotes. Depending on the derivative type and the specific terms of
the transaction, these models vary and include observable inputs in actively quoted markets including but not limited to: underlying reference entity details, indices, spreads, interest rates, yield curves, dividend and exchange rates. These
instruments are generally categorized as Level 2 in the hierarchy. Centrally cleared swaps listed or traded on a bilateral or trade facility platform, such as a registered exchange, are valued at the last posted settlement price determined by the
respective exchange. These securities are generally categorized as Level 2 within the hierarchy.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
Investments in open-end mutual funds are
valued at NAV. Investments in closed-end funds and ETFs are valued as of the close of regular trading on the NYSE each business day. Each is categorized as Level 1 in the hierarchy.
A summary of the inputs used to value the
Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments for the Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing
in those securities.
| B.
|
Security Transactions and
Investment Income |
| |
Security transactions are
recorded on the trade date. Realized gains and losses from the sale of securities are determined on the identified cost basis. Dividend income and capital gain distributions are recognized on the ex-dividend date or, in the case of certain foreign
securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Premiums on callable debt instruments are amortized to interest
income to the earliest call date using the effective interest method. Conversion premium is not amortized. |
| |
Any distributions from
underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds. |
| C.
|
Income Taxes |
| |
It is the Fund’s
intention to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and to distribute substantially all of its taxable income and capital gains, if any, to its shareholders. Therefore,
no provision for federal income taxes or excise taxes has been made. |
| |
The Fund may be subject to
foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that
exist in the markets in which it invests. |
| |
Management of the Fund has
concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Fund’s U.S. federal income tax return is generally subject to examination by the Internal Revenue Service for a
period of three years after it is filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction. |
| D.
|
Distributions to Shareholders
|
| |
The Fund declares
distributions on a monthly basis. Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. |
| |
Distributions may represent
earnings from net investment income, realized capital gains, or, if necessary, return of capital. |
| E.
|
Foreign Currency Transactions
|
| |
Non-U.S.
investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at
the currency exchange rate effective at the trade date. The gain or loss resulting from a |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
change in currency exchange
rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it
is paid is treated as a gain or loss on foreign currency. The Fund bifurcates that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of
securities held and such fluctuations are included with the net realized and unrealized gain or loss on foreign currency transactions. |
| F.
|
Credit Linked Notes |
| |
The Fund may invest in credit
linked notes to obtain economic exposure to high yield, emerging markets or other securities. Investments in a credit linked note typically provide the holder with a return based on the return of an underlying reference instrument, such as an
emerging market bond. Like an investment in a bond, investments in credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. In
addition to the risks associated with the underlying reference instrument, an investment in a credit linked note is also subject to liquidity risk, market risk, interest rate risk and the risk that the counterparty will be unwilling or unable to
meet its obligations under the note. |
| G.
|
Payment-In-Kind Securities
|
| |
The Fund may invest in
payment-in-kind securities, which are debt or preferred stock securities that require or permit payment of interest in the form of additional securities. Payment-in-kind securities allow the issuer to avoid or delay the need to generate cash to meet
current interest payments and, as a result, may involve greater risk than securities that pay interest currently or in cash. |
| H.
|
Leveraged Loans |
| |
The Fund may invest in direct
debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Leveraged loans are generally non-investment grade and often involve borrowers that are highly leveraged. The Fund
may invest in obligations of borrowers who are in bankruptcy proceedings. Leveraged loans are typically senior in the corporate capital structure of the borrower. A loan is often administered by a bank or other financial institution (the
“lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the leveraged loan. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a
portion of loans from third parties. When investing in loan participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan participation and only upon
receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the leveraged loan with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the
lender that is selling the leveraged loan. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. |
| |
The Fund
may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Leveraged loans may involve foreign borrowers and investments may be denominated in foreign currencies. Direct |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
indebtedness of emerging
countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due. |
| |
The leveraged loans have
floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR, SOFR, the prime rate offered by one or more U.S.
banks or the certificate of deposit rate. When a leveraged loan is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a
leveraged loan. Prepayment penalty fees are received upon the prepayment of a leveraged loan by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid. |
| |
The Fund may invest in both
secured loans and “covenant lite” loans which have few or no financial maintenance covenants that would require a borrower to maintain certain financial metrics. The lack of financial maintenance covenants in covenant lite loans
increases the risk that the Fund will experience difficulty or delays in enforcing its rights on its holdings of such loans, which may result in losses, especially during a downturn in the credit cycle. |
| I.
|
Expenses
|
| |
Expenses incurred together by
the Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expenses to the Fund and each such other fund, or an alternative allocation method, can be more
appropriately used. |
| |
In addition to the net annual
operating expenses that the Fund bears directly, the shareholders of the Fund indirectly bear the pro-rata expenses of any underlying mutual funds in which the Fund invests. |
| J.
|
Cash and Cash Equivalents
|
| |
Cash and
cash equivalents include deposits held at financial institutions, and are inclusive of dollar denominated cash, foreign currency, cash collateral pledged for swaps, and deposits with brokers for reverse repurchase agreements. |
Note 3. Derivative Financial Instruments and
Transactions
($ reported in
thousands)
Disclosures about
derivative instruments and hedging activities are intended to enable investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund’s results of operations and
financial position. Summarized below are such disclosures and accounting policies for each specific type of derivative instrument used by the Fund.
| A.
|
Forward Foreign Currency
Exchange Contracts |
| |
A forward
foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the
currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized appreciation or depreciation. When the contract
|
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
is closed, the Fund records a
realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of the contract changes
unfavorably due to movements in the value of the referenced foreign currencies. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in U.S. dollars without the delivery of foreign currency. |
| |
During the year ended
November 30, 2023, the Fund entered into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies
(foreign currency exchange rate risk). Forward foreign currency contracts outstanding at period end, if any, are listed after the Fund’s Schedule of Investments. |
| B.
|
Swaps
|
| |
The Fund enters into swap
agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are negotiated in the OTC market and may be entered into as a bilateral
contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The value of the swap is reflected on the Statement of Assets and Liabilities as “Swaps at value”. Swaps are marked-to-market daily and
changes in value are recorded as “Net change in unrealized appreciation (depreciation) on swaps” in the Statement of Operations. |
| |
Any upfront premiums paid are
recorded as assets and any upfront fees received are recorded as liabilities and are shown under “Swaps at value” in the Statement of Assets and Liabilities and are amortized over the term of the swap. When a swap is terminated, the Fund
records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contracts is the unamortized premium received or
paid. Cash settlements between the Fund and the counterparty are recognized as “Net realized gain (loss) on swaps” in the Statement of Operations. Swap contracts outstanding at period end, if any, are listed after the Fund’s
Schedule of Investments. |
| |
In a centrally cleared swap,
immediately following execution of the swap agreement, the swap agreement is submitted to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with
the CCP through a clearing broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the clearing broker in the form of cash or securities in an amount that varies depending on the size and risk profile
of the particular swap. |
| |
Securities deposited as
margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as “Cash collateral pledged for swaps.” |
| |
Swap
transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for
these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
that there may be unfavorable
changes in interest rates and/or market values associated with these transactions. |
| |
Credit default swaps – The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name
issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to the referenced entity
(e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on a combination or basket of single-name issuers are agreements in which the buyer pays fixed periodic payments to the
seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to any of the referenced entities (e.g., bankruptcy, failure to pay, obligation accelerators,
repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a
write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Fund will either receive from the seller an amount equal to the
notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying
securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities
comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. The Fund may enter into credit default swaps to manage their
exposure to the market or certain sectors of the market, to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit
risk). |
| |
During the year ended
November 30, 2023, the Fund utilized single name credit default swaps to short individual securities or to gain exposure to a credit or asset-backed index. |
| |
The
following is a summary of derivative instruments categorized by primary risk exposure, and location as presented in the Statement of Assets and Liabilities as of November 30, 2023: |
| Statement
Line Description |
|
Primary
Risk |
|
| Liability
Derivatives |
| Over-the-counter
swaps at value(1) |
|
Credit
contracts |
$(4,704)
|
|
| Total
Liabilities |
|
|
$(4,704)
|
|
| |
|
|
(1) |
Represents
cumulative appreciation (depreciation) on swap contracts as reported in the Schedule of Investments. For OTC swap contracts, the value (including premiums) at November 30, 2023 is shown in the Statement of Assets and Liabilities.
|
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
The following is a summary of derivative
instruments categorized by primary risk exposure, and location as presented in the Statement of Operations for the year ended November 30, 2023:
| Statement
Line Description |
|
Primary
Risk |
|
| Net
Realized Gain (Loss) from |
|
|
| Forward
foreign currency exchange contracts |
|
Foreign
currency contracts |
$
(300) |
|
| Swaps
|
|
Credit
contracts |
(4,149)
|
|
| Total
|
|
|
$
(4,449) |
|
| Net
Change in Unrealized Appreciation (Depreciation) on |
|
|
| Forward
foreign currency exchange contracts |
|
Foreign
currency contracts |
$
172 |
|
| Swaps
|
|
Credit
contracts |
6,718
|
|
| Total
|
|
|
$
6,890 |
|
The table below shows the quarterly average
volume (unless otherwise specified) of the derivatives held by the Fund for the year ended November 30, 2023.
|
|
|
|
Forward Foreign Currency Exchange Purchase
Contracts(1)
|
$
498 |
|
Forward Foreign Currency Exchange Sale
Contracts(1)
|
1,417
|
|
Credit Default Swap Contracts - Sell
Protection(1)
|
27,732
|
|
(1) Average notional amount. |
| C.
|
Derivative Risks |
| |
A derivative contract may
suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
|
| |
The Fund’s risk of loss
from counterparty credit risk on derivatives bought or sold OTC rather than traded on a securities exchange, is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund. For OTC purchased options,
the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by a Fund do
not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty to perform. |
| |
With
exchange traded purchased options and futures and centrally cleared swaps generally speaking, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees
against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a
contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures and
centrally cleared swaps with respect to initial and variation |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
margin that is held in a
clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in
the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro-rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
|
| |
In order to better define its
contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or
similar agreement with its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other
things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain
derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the
event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or
other events. In addition, certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the
Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty. |
| D.
|
Collateral Requirements and
Master Netting Agreements (“MNA”) |
| |
For derivatives traded under
an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and
the counterparty. |
| |
Cash collateral that has been
pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively.
Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Fund and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its
counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it
believes have the financial resources to honor its obligations and by monitoring the financial stability of those counterparties. |
| |
For financial reporting
purposes, the Fund does not offset derivative assets and liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities. |
| |
The
following tables present the Fund’s derivative assets and liabilities and reverse repurchase agreements by counterparty net of amounts available for offset under a |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
MNA and net of the related
collateral received/pledged by the Fund as of November 30, 2023: |
| At
November 30, 2023, the Fund’s derivative assets and liabilities (by type) are as follows: |
|
|
| |
Assets
|
Liabilities
|
Derivative
Financial
Instruments: |
|
|
| OTC
swaps |
$—
|
$6,154
|
Total
derivative assets and liabilities in
the Statement of Assets and Liabilities |
$—
|
$6,154
|
Derivatives
not subject to a MNA
or similar agreement |
—
|
—
|
Total
assets and liabilities
subject to a MNA |
$—
|
$6,154
|
| Counterparty
|
|
Derivatives
Liabilities
Subject to
a MNA by
Counterparty |
|
Derivatives
Available
for Offset |
|
Non-cash
Collateral
Pledged |
|
Cash
Collateral
Pledged(1) |
|
Net
Amount of
Derivative
Liabilities(1) |
|
Barclays
|
|
$6,154
|
|
$—
|
|
$—
|
|
$(6,154)
|
|
$—
|
|
Total
|
|
$6,154
|
|
$—
|
|
$—
|
|
$(6,154)
|
|
$—
|
(1) These amounts are limited to the derivatives asset/liability balance and, accordingly, do not include excess collateral
received/pledged.
Note 4. Investment
Advisory Fees and Related Party Transactions
($ reported in thousands)
| A.
|
Investment Adviser |
| |
Virtus Alternative Investment
Advisers, Inc. (the “Adviser”), an indirect, wholly-owned subsidiary of Virtus Investment Partners, Inc. (“Virtus”), is the investment adviser to the Fund. The Adviser manages the Fund’s investment program and general
operations of the Fund, including oversight of the Fund’s subadviser. |
| |
As compensation for its
services to the Fund, the Adviser receives a fee at an annual rate of 1.00% of the average daily value of the Fund’s total assets (including any assets attributable to any leverage used) minus the Fund’s accrued liabilities (other than
the Fund liabilities incurred for any leverage) (“Managed Assets”) provided that the Adviser fee does not exceed 1.50% of the Fund’s net assets. |
| B.
|
Subadviser
|
| |
Virtus
Fixed Income Advisers, LLC, an indirect, wholly-owned subsidiary of Virtus, acting through its division, Stone Harbor Investment Partners, is the subadviser to the Fund. The subadviser manages the investments of the Fund, for which it is paid a fee
by the Adviser. |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
|
C. |
Expense Limitation |
| |
The Adviser has contractually
agreed to limit the Fund’s annual total operating expenses, subject to the exclusions listed below, so that such expenses do not exceed, on an annualized basis, 0.58% of average daily net assets through April 10, 2024. Following the
contractual period, the Adviser may discontinue these expense reimbursement arrangements at any time. The reimbursements are accrued daily and received monthly. |
| |
The exclusions include
investment advisory fees, interest, any other fees or expenses relating to financial leverage, preferred shares (such as dividends on preferred shares, auction agent fees and commissions and rating agency fees) or borrowing (such as interest,
commitment, amendment and renewal expenses on credit or redemption facilities), taxes, extraordinary, unusual or infrequently occurring expenses (such as litigation), costs related to share offerings, brokerage commissions, expenses incurred in
connection with any merger or reorganization, underlying fund expenses and dividend expenses, if any (each expressed as a percentage of average daily net assets attributable to common shares). |
| D. |
Expense Recapture |
| |
Under certain conditions, the
Adviser may recapture operating expenses reimbursed or fees waived under these arrangements within three years after the date on which such amounts were incurred or waived. The Fund must pay its ordinary operating expenses before the Adviser is
entitled to any reimbursement and must remain in compliance with any applicable expense limitations or, if none, the expense limitation in effect at the time of the waiver or reimbursement. |
| |
During the year ended
November 30, 2023, the Adviser did not recapture expenses. |
| E.
|
Administration Services
|
| |
Virtus Fund Services, LLC, an
indirect, wholly-owned subsidiary of Virtus, serves as administrator to the Fund. For the services provided by the administrator under the Administration Agreement, the Fund pays the administrator an asset-based fee calculated on the Fund’s
average daily Managed Assets. This fee is calculated daily and paid monthly. |
| |
For the year ended November
30, 2023, the Fund incurred administration fees totaling $93 which are included in the Statement of Operations within the line item “Administration and accounting fees.” |
| F.
|
Trustees’ Fees |
| |
For the year ended November
30, 2023, the Fund incurred Trustees’ fees totaling $19 which are included in the Statement of Operations within the line item “Trustees’ fees and expenses.” |
| G.
|
Investments with Affiliates
|
| |
The Fund
is permitted to purchase assets from or sell assets to certain related affiliates under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of assets by the Fund
from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common |
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
| |
Trustees and/or common
officers comply with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. |
| |
During the year ended
November 30, 2023, the Fund did not engage in any transactions pursuant to Rule 17a-7 under the 1940 Act. |
| H.
|
Trustees Deferred Compensation
Plan |
| |
The Fund
provides a deferred compensation plan for its Trustees who receive compensation from the Fund. Under the deferred compensation plan, Trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund, and
then, to the extent permitted by the 1940 Act, in turn, may be invested in the shares of affiliated or unaffiliated mutual funds selected by the participating Trustees. Investments in such instruments are included in “Prepaid expenses and
other assets” in the Statement of Assets and Liabilities at November 30, 2023. |
Note 5. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding
short-term securities) during the year ended November 30, 2023, were as follows:
| Purchases
|
|
Sales
|
| $63,832
|
|
$73,521
|
Note 6. Federal Income Tax
Information
($ reported in
thousands)
At November 30, 2023, the
approximate cost basis and aggregate unrealized appreciation (depreciation) of investments and other financial instruments held by the Fund for federal income tax purposes were as follows:
Federal
Tax Cost |
|
Unrealized
Appreciation |
|
Unrealized
(Depreciation) |
|
Net
Unrealized
Appreciation
(Depreciation) |
| $88,968
|
|
$2,267
|
|
$(11,869)
|
|
$(9,602)
|
The Fund has
capital loss carryovers available to offset future realized capital gains, if any, to the extent permitted by the Code. Net capital losses are carried forward without expiration and generally retain their short-term and/or long-term tax character,
as applicable. For the fiscal year ended November 30, 2023, the Fund’s capital loss carryovers are as follows:
| Short-Term
|
|
Long-Term
|
| $55,782
|
|
$83,057
|
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
The components of distributable earnings on
a tax basis and certain tax attributes for the Fund consist of the following:
Post-October
Capital Loss
Deferred |
|
Capital
Loss
Deferred |
| $
2,400 |
|
$
138,839 |
The
differences between the book and tax basis of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions, if any, are reported as ordinary income for
federal tax purposes. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.
The tax character of dividends and
distributions paid during the fiscal years ended November 30, 2023 and 2022 was as follows:
| |
|
|
|
| |
2023
|
|
2022
|
|
Ordinary
Income
|
$11,445
|
|
$
1,512 |
|
Return of
Capital
|
951
|
|
10,711
|
|
Total
|
$12,396
|
|
$12,223
|
Certain capital
accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. Permanent reclassifications can arise from differing treatment of certain income and gain transactions and
nondeductible current year net operating losses. These adjustments have no impact on net assets or net asset value per share of the Fund. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different
periods for financial statement and tax purposes will likely reverse at some time in the future.
Note 7. Credit and Market Risk and Asset
Concentration
In July 2017, the head
of the United Kingdom Financial Conduct Authority (“FCA”) announced the intention to phase out the use of LIBOR by the end of 2021. However, after subsequent announcements by the FCA, the LIBOR administrator and other regulators, certain
of the most widely used LIBORs continued until June 30, 2023. The ICE Benchmark Administration Limited, which is regulated and authorized by FCA, and the administrator of LIBOR, ceased publishing certain LIBOR settings on December 31, 2021. On April
3, 2023, the FCA announced its decision to require LIBOR’s administrator to continue to publish the 1-month, 3-month, and 6-month U.S. dollar settings under an unrepresentative synthetic methodology until September 30, 2024. On March 15, 2022,
the Adjustable Interest Act (LIBOR) Act (the “LIBOR Act”) was enacted into law which directs the Federal Reserve Board, as a fallback mechanism, to identify benchmark rates based on SOFR to replace LIBOR in certain financial contracts
after June 30, 2023. On December 16, 2022, the Federal Reserve adopted regulations implementing the LIBOR Act. The Fund may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or
investment value. The discontinuation of LIBOR could have a significant impact on the financial markets and may present a material risk for certain market
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
participants, including the Fund. Abandonment of or
modifications to LIBOR could lead to significant short- and long-term uncertainty and market instability. The risks associated with this discontinuation and transition may be exacerbated if the work necessary to effect an orderly transition to an
alternative reference rate is not completed in a timely manner. It remains uncertain the effects such changes will have on the Fund, issuers of instruments in which the Fund invests, and the financial markets generally.
Local, regional or global events such as war
or military conflict, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the Fund and its investments, including hampering the ability of the Fund’s
portfolio manager(s) to invest the Fund’s assets as intended.
Emerging market countries typically have
economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or
deflation. Since these markets are often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may
also have policies that restrict investment by foreigners, or that prevent foreign investors from withdrawing their money at will.
Certain emerging markets may also face other
significant internal or external risks, including the risk of war and civil unrest. Each of these factors can affect the value and liquidity of the assets of the Fund. Failure to generate adequate earnings from foreign trade would make it difficult
for an emerging market country to service foreign debt. Disruptions resulting from social and political factors may cause the securities markets of emerging market countries to close. If this were to occur, the liquidity and value of the
Fund’s assets invested in corporate debt obligations of emerging market companies would decline.
The imposition of sanctions, exchange
controls (including repatriation restrictions), confiscation of assets and property, trade restrictions (including tariffs) and other government restrictions by the U.S. or other governments, or from problems in registration, settlement or custody,
may also result in losses. The type and severity of sanctions and other similar measures, including counter sanctions and other retaliatory actions, that may be imposed could vary broadly in scope, and their impact is impossible to predict. For
example, the imposition of sanctions and other similar measures could, among other things, cause a decline in the value and/or liquidity of securities issued by the sanctioned country or companies located in or economically tied to the sanctioned
country and increase market volatility and disruption in the sanctioned country and throughout the world. Sanctions and other similar measures could limit or prevent the Fund from buying and selling securities (in the sanctioned country and other
markets), significantly delay or prevent the settlement of securities transactions, and significantly impact the Fund’s liquidity and performance.
Sanctions threatened or imposed may result
in a decline in the value and liquidity of the Fund’s assets. The securities of the Fund may be deemed to have a zero value. The Fund may make investments that are illiquid or that may become less liquid in response to market developments or
adverse investor perceptions. Illiquid investments may be more difficult to value. If the Fund is forced to sell securities at an unfavorable time and/or under unfavorable conditions, such sales may adversely affect the Fund’s NAV and dilute
investors’ interests. Liquidity risk may be the result of, among other things, the reduced number and capacity of
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
traditional market participants to make a market in fixed
income securities or the lack of an active market. The potential for liquidity risk may be magnified by a rising interest rate environment or other circumstances where investor redemptions from fixed income funds may be higher than normal,
potentially causing increased supply in the market due to selling activity. These risks may be more pronounced in connection with the Fund’s investments in securities of issuers located in emerging market countries.
For all these reasons, investments in
emerging markets may be considered speculative. To the extent that the Fund invests a significant portion of its assets in a particular emerging market, the Fund will be more vulnerable to financial, economic, political and other developments in
that country, and conditions that negatively impact that country will have a greater impact on the Fund as compared with a fund that does not have its holdings concentrated in a particular country.
High-yield/high-risk securities typically
entail greater price volatility and/or principal and interest rate risk. There is a greater chance that an issuer will not be able to make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield/high-risk
securities may be complex, and as a result, it may be more difficult for the Adviser and/or subadviser to accurately predict risk.
The Fund leverages its portfolio through
entering into reverse repurchase agreements or the issuance of debt securities. While leverage presents opportunities for increasing the Fund’s total return, it also has the effect of potentially increasing losses. Accordingly, any event which
adversely affects the value of an investment held by the Fund would be magnified to the extent the Fund is leveraged.
Note 8. Borrowings
($ reported in thousands)
The Fund may borrow from banks and other
financial institutions and may also borrow additional funds by entering into reverse repurchase agreements or the issuance of debt securities (collectively, “Borrowings”) in an amount that does not exceed 33 1/3% of the Fund’s
Managed Assets (defined in Note 4) immediately after such transactions. It is possible that following such Borrowings, the assets of the Fund will decline due to market conditions such that this 33 1/3% limit will be exceeded. In that case, the
leverage risk to Common Shareholders will increase.
In a reverse repurchase agreement, the Fund
delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. The Fund is entitled to receive
principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by the Fund to counterparties
are reflected as a liability on the Statement of Assets and Liabilities. Interest payments made by the Fund to counterparties are recorded as a component of interest expense on the Statement of Operations. In periods of increased demand for the
security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. The Fund will segregate assets determined to be liquid to cover its obligations under reverse repurchase agreements.
The segregated assets are found on the Fund’s Schedule of Investments as full or partially pledge securities. The total amount of securities
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
pledged at November 30, 2023 was $18,255. As all agreements
can be terminated by either party on demand, face value approximates fair value at November 30, 2023. For the year ended November 30, 2023, the average amount of reverse repurchase agreements outstanding was $20,658, at a weighted average interest
rate of 5.52%.
The following table
indicates the total amount of reverse repurchase agreements, reconciled to gross liability as of November 30, 2023:
| |
Overnight
&
Continuous |
Up to 30
days |
30-90 days
|
Greater
than
90 days |
Total
|
| |
|
|
|
|
|
| Sovereign
Debt Obligations |
$
6,525 |
$—
|
$—
|
$—
|
$
6,525 |
| Corporate
Bonds |
7,647
|
—
|
—
|
—
|
7,647
|
| Total
|
$14,172
|
$—
|
$—
|
$—
|
$14,172
|
| Gross
amount of unrecognized liabilities of reverse repurchase agreements |
$14,172
|
Note 9.
Indemnifications
Under the
Fund’s organizational documents, the Fund, its Trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into
contracts that provide a variety of indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund and that have not occurred. However,
the Fund has not had prior claims or losses pursuant to these arrangements and expects the risk of loss to be remote.
Note 10. Capital Shares
At November 30, 2023, the Fund has one class
of common stock with $0.001 par value of which unlimited shares are authorized.
Note 11. Restricted Securities
Restricted securities are not registered
under the Securities Act of 1933, as amended (the “1933 Act”). Generally, 144A securities are excluded from this category. The Fund will bear any costs, including those involved in registration under the 1933 Act, in connection with the
disposition of such securities. At November 30, 2023, the Fund did not hold any securities that were restricted.
Note 12. Regulatory Matters and Litigation
From time to time, the Fund, the Adviser,
the subadviser, and/or their respective affiliates may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance with, among other things, securities
laws, client investment guidelines, and laws and regulations affecting their activities. At this time, the Fund and the Adviser believe that the outcomes of such matters are not likely, either individually or in the aggregate, to be material to
these financial statements.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
NOTES TO FINANCIAL STATEMENTS
(Continued)
November 30, 2023
Note 13. Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting
Standards Update (“ASU”) No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in ASU 2020-04 provide optional
temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered reference rates as of the end of 2021. In March 2021, the administrator for
LIBOR announced the extension of the publication of a majority of the USD LIBOR settings to June 30, 2023. On December 21, 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASU 2020-04 until December 31, 2024. ASU 2020-04 is effective
for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2024. Management is currently evaluating ASU 2020-04 and ASU 2020-06, but does not believe there will be a material
impact.
Note 14. Subsequent Events
Management has evaluated the impact of all
subsequent events on the Fund through the date the financial statements were available for issuance, and has determined that the following event requires recognition or disclosure in these financial statements.
On May 22, 2023, shareholders of the Fund
approved the issuance of additional common shares in connection with the proposed reorganization of the Virtus Stone Harbor Emerging Markets Total Income Fund (EDI) with and into the Fund. The reorganization was completed as of the close of business
on the New York Stock Exchange on Friday, December 15, 2023.
Report of Independent
Registered Public Accounting Firm
To the Board of
Trustees and Shareholders of Virtus Stone Harbor Emerging Markets Income Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) as of November 30, 2023, the related statements of operations and cash flows for the year ended November 30, 2023,
the statement of changes in net assets for the year ended November 30, 2023, including the related notes, and the financial highlights for the year ended November 30, 2023 (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of November 30, 2023, the results of its operations and its cash flows for the year then ended, the changes in its net assets for the
period ended November 30, 2023 and the financial highlights for the period ended November 30, 2023 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year
ended November 30, 2022 and the financial highlights for each of the periods ended on or prior to November 30, 2022 (not presented herein, other than the statements of changes in net assets and the financial highlights) were audited by other
auditors whose report dated January 27, 2023 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the responsibility of the
Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of
securities owned as of November 30, 2023 by correspondence with the custodian, transfer agent and brokers; when a reply was not received from a broker, we performed other auditing procedures. We believe that our audit provides a reasonable basis for
our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 24, 2024
We have served as the auditor of one or more of the investment
companies in the Virtus group of investment companies since at least 1977. We have not been able to determine the specific year we began serving as auditor.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
TAX INFORMATION NOTICE (Unaudited)
November 30, 2023
The
following information ($ reported in thousands) is being provided in order to meet reporting requirements set forth by the Code and/or to meet state specific requirements. In early 2024, the Fund will notify applicable shareholders of amounts for
use in preparing 2023 U.S. federal income tax forms. Shareholders should consult their tax advisors.
With respect to distributions paid during the fiscal year ended
November 30, 2023, the Fund designates the following amounts (or, if subsequently determined to be different, the maximum amount allowable):
| |
Qualified
Dividend Income %
(for non-corporate shareholders) |
|
Dividend
Received Deduction %
(for corporate shareholders) |
|
Long-Term
Capital Gain Distributions ($) |
| |
0.00%
|
|
0.00%
|
|
$0
|
CERTIFICATION
The Fund files the required annual Chief
Executive Officer (“CEO”) certification regarding compliance with the NYSE’s listing standards no more than 30 days after each annual shareholder meeting for the Fund. The Fund has included the certifications of the Fund’s
CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.
KEY INFORMATION
Shareholder Relations: 1-866-270-7788
For general information and literature, as well as updates
on net asset value, share price, major industry groups and other key information.
REINVESTMENT PLAN
The Dividend Reinvestment Plan (the
“Plan”) offers shareholders a convenient way to acquire additional shares of the Fund. Registered holders will be automatically placed in the Plan and may opt out by calling Shareholder Relations at the number listed above. If shares are
held at a brokerage firm, contact your broker about participation in the Plan.
REPURCHASE OF SECURITIES
Notice is hereby given in accordance with
Section 23(c) of the 1940 Act that the Fund may from time to time purchase its shares of common stock in the open market when Fund shares are trading at a discount from their net asset value.
PROXY VOTING INFORMATION (FORM N-PX)
The subadviser votes proxies relating to
portfolio securities in accordance with procedures that have been approved by the Fund’s Board. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month
period ended June 30, free of charge, by calling toll-free 1-866-270-7788. This information is also available through the SEC’s website at https://www.sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The Fund files its complete schedule of
portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form NPORT-P. Form NPORT-P is available on the SEC’s website at https://www.sec.gov.
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited)
The Fund’s investment objective is to
maximize total return, which consists of income on its investments and capital appreciation. The Fund normally will invest at least 80% of its net assets (plus any borrowings for investment purposes) in Emerging Markets Securities (the “80%
policy”). “Emerging Markets Securities” include fixed income securities and other instruments (including derivatives) that are economically tied to emerging market countries, that are denominated in the predominant currency of the
local market of an emerging market country or whose performance is linked to those countries’ markets, currencies, economies or ability to repay loans. A security or instrument is economically tied to an emerging market country if it is
principally traded on the country’s securities markets or if the issuer is organized or principally operates in the country, derives a majority of its income from its operations within the country or has a majority of its assets within the
country.
The Fund considers emerging
market countries as those countries identified by the World Bank Group as being “low income economies” or which are included in a J.P. Morgan emerging market bond index. It is anticipated that the Fund will focus most of its investments
in Asia, Africa, the Middle East, Latin America and the developing countries of Europe. The Fund’s investments may include, among other things, sovereign debt obligations, corporate debt securities, structured notes, convertible securities,
securities issued by supranational organizations, floating rate commercial loans, securitized loan participations, restricted securities, non-U.S. currencies, currency forward contracts and other foreign currency transactions, and derivatives
related to or referencing these types of securities and instruments. The Fund may use derivatives to a significant extent for hedging, investment or leverage purposes. Although Emerging Markets Securities may include any derivative or other
instrument that provides the Fund exposure to emerging markets, the Fund currently expects that its derivatives transactions or instruments will consist primarily of the following instruments and transactions: credit linked notes, foreign currency
forward contracts, credit default swaps, interest rate swaps, total return swaps on individual securities and groups or indices of securities, and interest rate futures contracts and options. The Fund may use these instruments for hedging purposes,
for leverage or otherwise to gain, or reduce, long or short exposure to emerging securities markets (for example, credit linked notes may be used to gain exposure to certain emerging markets fixed income securities). Emerging Markets Securities may
be denominated in non-U.S. currencies or the U.S. dollar.
The Fund seeks income and capital
appreciation through country selection, sector selection, security selection and currency selection. In selecting Emerging Markets Securities for investment, the Fund’s subadviser will apply a market risk analysis contemplating the assessment
of various factors, such as liquidity, volatility, tax implications, interest rate sensitivity, counterparty risks, economic factors, currency exchange rates and technical market considerations.
The Fund may invest, without limitation, in
debt securities that are rated below investment grade by a nationally recognized statistical rating organization or unrated securities that are deemed to be of comparable quality by the Fund’s subadviser, including defaulted securities. Debt
securities rated below investment grade are commonly known as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligations and involve major risk exposure to adverse conditions.
The Fund’s holdings may range in
maturity from overnight to 30 years or more. The Fund’s subadviser does not manage the Fund to have a specific average maturity or duration. The Fund may also invest in currencies, money market and short-term debt securities and cash
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited) (Continued)
equivalents, warrants, structured investments or other
derivatives, which may be used to maintain exposure of at least 80% of its net assets (plus borrowings for investment purposes) to Emerging Markets Securities. Under certain limited circumstances, the Fund may obtain substantially all of its
investment exposure to Emerging Markets Securities through the use of derivatives.
The Fund intends to invest less than 50% of
its assets in a single country.
In
addition, the Fund may invest the remainder of its assets in securities which will not be used to achieve the Fund’s 80% policy, such as shares of open- and closed-end investment companies, common stocks, bonds and convertible
securities.
The Fund’s investment
objective and 80% policy are non-fundamental, and may be changed without shareholder approval; however, shareholders will be notified in writing of any material changes to the investment objective or the 80% policy at least 60 days prior to any
change. There have been no changes to the Fund’s investment objectives and policies during the reporting period. This information may not reflect all of the changes that have occurred since you purchased the Fund.
The Fund may borrow from banks and other
financial institutions and may also borrow additional funds through reverse repurchase agreements or the issuance of debt securities (collectively, “Borrowings”) Under normal market conditions, the Fund intends to leverage the Fund by
engaging in Borrowings and/or issuing preferred shares. The aggregate amount of the Fund’s Borrowings and the liquidation value of any preferred shares will generally not exceed 33 1/3% of the Fund’s Managed Assets measured immediately
after the transaction giving rise to the leverage. The Fund may also enter into other transactions that are not subject to this 33 1/3% threshold but that may give rise to a form of leverage including, among others, credit default swaps and other
derivatives transactions, loans of portfolio securities and when-issued, delayed delivery or forward commitment transactions. At all times, however, the Fund’s use of these transactions will be limited by the Fund’s policies relating to
asset segregation and “coverage” of these types of transactions.
Principal Risk Factors
Investing in the Fund involves risks,
including the risk that you may receive little or no return on your investment or that you may lose part or even all of your investment.
Non-Diversification: As a non-diversified investment company, the Fund is not limited in the proportion of assets that it may invest in the securities of any one issuer. If the Fund takes concentrated positions in a small number of issuers,
the Fund may be more susceptible to the risks associated with those issuers, or to a single economic, political, regulatory or other event affecting those issuers.
Management:
The Fund is subject to management risk because it is an actively managed investment portfolio. The subadviser ’s judgments about the attractiveness and potential appreciation of an investment may prove to be inaccurate and may not produce the
desired results. The subadviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its decisions will produce the intended result.
Market Volatility: The value of the securities in which the Fund invests may go up or down in response to the prospects of individual issuers and/or general economic conditions. Such price
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited) (Continued)
changes may be temporary or may last for extended
periods. Local, regional, or global events such as war (e.g., Russia’s invasion of Ukraine), acts of terrorism, the spread of infectious illness (e.g., COVID-19 pandemic) or other public health issues, recessions, or other events could
have a significant impact on the Fund and its investments, including hampering the ability of the Fund’s portfolio managers to invest the Fund’s assets as intended.
Foreign Investing: Investing in securities of non-U.S. companies involves special risks and considerations not typically associated with investing in U.S. companies, and the values of non-U.S. securities may be more volatile than those of
U.S. securities. The values of non-U.S. securities are subject to economic and political developments in countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary
policies, and to changes in currency exchange rates. Values may also be affected by restrictions on receiving the investment proceeds from a non-U.S. country.
In general, less information is publicly
available about non-U.S. companies than about U.S. companies. Non-U.S. companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. Certain foreign issuers classified as passive
foreign investment companies may be subject to additional taxation risk.
Emerging Market Investing: The risks of foreign investments are generally greater in countries whose markets are still developing than they are in more developed markets. Emerging market countries typically have economic and political systems that
are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Since these markets are
often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may also have policies that restrict
investment by foreigners, or that prevent foreign investors from withdrawing their money at will. Certain emerging markets may also face other significant internal or external risks, including the imposition of sanctions, the risk of war and civil
unrest. For all of these reasons, investments in emerging markets may be considered speculative. To the extent that the Fund invests a significant portion of its assets in a particular emerging market, the Fund will be more vulnerable to financial,
economic, political and other developments in that country, and conditions that negatively impact that country will have a greater impact on the Fund as compared with a fund that does not have its holdings concentrated in a particular
country.
Sanctions: The imposition of sanctions and other similar measures could cause a decline in the value and/or liquidity of securities issued by or tied to the sanctioned country and increase market volatility and disruption in the
sanctioned country and throughout the world. Sanctions and other similar measures could limit or prevent the Fund from buying and selling securities (in the sanctioned country and other markets), significantly delay or prevent the settlement of
transactions, and negatively impact the Fund’s liquidity and performance.
Currency
Rate: Because the foreign securities in which the Fund invests generally trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the Fund’s net asset value, the value of
dividends and interest earned, and gains and losses realized on the sale of securities. Because the value of the Fund’s shares is calculated in U.S. dollars, it is possible for the Fund to lose money by investing in a foreign security if
the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund’s
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited) (Continued)
holdings goes up. Generally, a strong U.S. dollar relative to
such other currencies will adversely affect the value of the Fund’s holdings in foreign securities.
Foreign Currency Transactions: The Fund may engage in foreign currency transactions, including foreign currency forward contracts, options, swaps and other similar strategic transactions. These transactions may be for the purposes of hedging or
efficient portfolio management, or may be for investment purposes, and they may be exchange traded or traded directly with market counterparties. Such transactions may not prove successful or may have the effect of limiting gains from favorable
markets movements.
The Fund may
use derivatives to acquire positions in various currencies, which presents the risk that the Fund could lose money on its exposure to a particular currency and also lose money on the derivative. The Fund also may take positions in currencies that do
not correlate to the currency exposure presented by the Fund’s other investments. As a result, the Fund’s currency exposure may differ, in some cases significantly, from the currency exposure of its other investments and/or its
benchmarks.
Sovereign Debt Obligations: When the Fund invests in debt instruments issued by a government outside the U.S., the Fund is exposed to the risks that: (a) the governmental entity that controls the repayment of government debt may not be willing or
able to repay the principal and/or to pay the interest when it becomes due, due to factors such as political considerations, the relative size of the governmental entity’s debt position in relation to the economy, cash flow problems,
insufficient foreign currency reserves, the failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies, and/or other national economic factors; (b) the issuing government may default on its
debt instruments, which may require holders of such securities to participate in debt rescheduling; and (c) there is no legal or bankruptcy process by which defaulted government debt may be collected in whole or in part.
Credit: There
is a risk that the issuer of a debt instrument will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the instrument to decline. Debt
instruments rated below investment-grade are especially susceptible to this risk.
Interest
Rate: The values of debt instruments usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the value of existing debt instruments, and rising interest rates
generally decrease the value of existing debt instruments. Changes in a debt instrument’s value usually will not affect the amount of interest income paid to the Fund, but will affect the value of the Fund’s shares. Interest rate risk is
generally greater for investments with longer maturities. It is difficult to predict the pace at which central banks or monetary authorities may change interest rates or the timing, frequency, or magnitude of such changes. Any such
changes could be sudden and could expose debt markets to significant volatility and reduced liquidity for investments.
Certain instruments pay interest at variable
or floating rates. Variable rate instruments reset at specified intervals, while floating rate instruments reset whenever there is a change in a specified index rate. In most cases, these reset provisions reduce the effect of changes in market
interest rates on the value of the instrument. However, some instruments do not track the underlying index directly, but reset based on formulas that can produce an effect similar to leveraging; others may also provide for interest payments that
vary inversely with market rates. The market prices of these instruments may fluctuate significantly when interest rates change.
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited) (Continued)
Some investments give the issuer the option
to call or redeem an investment before its maturity date. If an issuer calls or redeems an investment during a time of declining interest rates, the Fund might have to reinvest the proceeds in an investment offering a lower yield, and therefore it
might not benefit from any increase in value as a result of declining interest rates.
Derivatives:
Derivative are contracts whose value is derived from the value of an underlying asset, index or rate, including futures, options, non-deliverable forwards, forward foreign currency exchange contracts and swap agreements. The Fund may use derivatives
to hedge against factors that affect the value of its investments, such as interest rates and foreign currency exchange rates. The Fund may also utilize derivatives as part of its overall investment technique to gain or lessen exposure to various
securities, markets, volatility, dividend payments and currencies.
Derivatives typically involve greater risks
than traditional investments. It is generally more difficult to ascertain the risk of, and to properly value, derivative contracts. Many derivatives, and particularly those that are privately negotiated, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the Fund. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions. Derivatives are usually
less liquid than traditional securities and are subject to counterparty risk (the risk that the other party to the contract will default or otherwise not be able to perform its contractual obligations). In addition, some derivatives transactions may
involve potentially unlimited losses.
Derivative contracts entered into for hedging
purposes may also subject the Fund to losses if the contracts do not correlate with the assets, indexes or rates they were designed to hedge. Gains and losses derived from hedging transactions are, therefore, more dependent upon the
subadviser’s ability to correctly predict the movement of the underlying asset prices, indexes or rates.
As an investment company registered with the
SEC, the Fund is subject to Rule 18f-4 under the 1940 Act, which applies to the Fund’s use of derivative investments and certain financing transactions (e.g., reverse repurchase agreements). Among other things, Rule 18f-4 requires a fund to
apply a value-at-risk based limit to its use of certain derivative instruments and financing transactions and to adopt and implement a derivatives risk management program. The application of Rule 18f-4 to the Fund could restrict the Fund’s
ability to utilize derivative investments and financing transactions and prevent the Fund from implementing its principal investment strategies as described herein, which may result in changes to the Fund’s principal investment strategies and
could adversely affect the Fund’s performance and its ability to achieve its investment objective. Governments, agencies and/or other regulatory bodies may further adopt or change laws or regulations that could adversely affect the
Fund’s ability to invest in derivatives as the Fund’s subadviser intends.
There are also special tax rules applicable
to certain types of derivatives, which could affect the amount, timing and character of the Fund’s income or loss and hence of its distributions to shareholders by causing holding period adjustments, converting short-term capital losses into
long-term capital losses, and accelerating the Fund’s income or deferring its losses. The Fund’s use of derivatives may also increase the amount of taxes payable by shareholders or the resources required by the Fund or its adviser and/or
subadviser to comply with particular regulatory requirements.
VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND
PRINCIPAL RISKS (Unaudited) (Continued)
Reverse Repurchase Agreements: The Fund may generate leverage by entering into reverse repurchase agreements, under which the Fund sells portfolio securities to financial institutions such as banks and broker-dealers and agrees to repurchase them at
a particular date and price. Such agreements, which are in effect collateralized borrowings by the Fund, are considered to be senior securities under Investment Company Act of 1940, as amended unless the Fund designates on its books and
records an amount of assets equal to the amount of the Fund’s obligations under the reverse repurchase agreements.
Counterparty:
When the Fund engages in investment techniques in which it relies on another party to consummate the transaction, the Fund is subject to the risk of default by the other party. To the extent that the Fund enters into multiple transactions with
a single or limited number of counterparties, the Fund will be subject to increased levels of counterparty risk.
High Yield Fixed Income Securities: Securities rated below the four highest rating categories of a nationally recognized statistical rating organization, may be known as “high-yield” securities and commonly referred to as “junk
bonds.” The highest of the ratings among these nationally recognized statistical rating organizations is used to determine the security’s classification. Such securities entail greater price volatility and credit and interest rate risk
than investment-grade securities. Analysis of the creditworthiness of high-yield/high-risk issuers is more complex than for higher-rated securities, making it more difficult for the Fund’s subadviser to accurately predict risk. There is a
greater risk with high-yield/high-risk fixed income securities that an issuer will not be able to make principal and interest payments when due. If the Fund pursues missed payments, there is a risk that the Fund’s expenses could increase. In
addition, lower-rated securities may not trade as often and may be less liquid than higher-rated securities, especially during periods of economic uncertainty or change. As a result of all of these factors, these bonds are generally considered to be
speculative.
Leverage: Although the Fund presently intends to utilize leverage, there can be no assurance that the Fund will do so, or that, if utilized, it will be successful during any period in which it is employed. The use of leverage by
the Fund would result in more risk to the Fund’s shareholders than if leverage had not been used and can magnify the effect of any losses. If the income and gains earned on securities to which the Fund has exposure through the use of leverage
are greater than the Fund’s costs of borrowing, the costs of derivatives transactions used to generate leverage the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those
securities do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. The expenses of a borrowing program and/or of a derivatives transaction will be borne by
shareholders and, consequently, will result in a reduction of the NAV of the Fund’s common shares. During periods in which the Fund is using leverage, the fees paid by the Fund for investment advisory and administrative services will be
higher than if the Fund did not use leverage, as such fees will be calculated on the basis of the Fund’s managed assets, which includes assets attributable to borrowings.
Closed-End Fund: Closed-end funds may trade at a discount or premium from their net asset values, which may affect whether an investor will realize gains or losses. They may also employ leverage, which may increase
volatility.
No Guarantee: There is no guarantee that the Fund will meet its objective.
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
Dividend Reinvestment Plan
(Unaudited)
Unless the registered owner of Common Shares
elects to receive cash by contacting Computershare (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend
Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of
record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in
additional Common Shares, which may result in a higher cost to such shareholders as compared to shareholders who participate in the Plan.
The Plan Administrator will open an account
for each Common Shareholder under the Plan in the same name in which such Common Shareholder’s Common Shares are registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants
in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional
unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment
date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on
behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that,
if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any
Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market
Purchases.
In the event of a market
discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such
Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan
Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting
in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan
Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period,
VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND
Dividend Reinvestment Plan
(Unaudited) (Continued)
the Plan
Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV
is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the
Plan.
The Plan Administrator maintains
all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by
the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote
proxies for shares held under the Plan in accordance with the instructions of the participants.
In the case of Common Shareholders such as
banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and
held for the account of beneficial owners who participate in the Plan.
There will be no brokerage charges with
respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve
participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.
The Fund reserves the right to amend or
terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning
the Plan should be directed to the Plan Administrator at 1-866-270-7788.
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE
HARBOR
EMERGING MARKETS INCOME FUND (Unaudited)
The Board of Trustees (the
“Board”) of Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) is responsible for determining whether to approve the continuation of the investment advisory agreement (the “Advisory Agreement”) between
the Fund and Virtus Alternative Investment Advisers, Inc. (“VAIA”) and the continuation of the subadvisory agreement (the “Subadvisory Agreement” and, together with the Advisory Agreement, the “Agreements”) with
Virtus Fixed Income Advisers, LLC, acting through its division Stone Harbor Investment Partners (the “Subadviser”). At a meeting held on November 1, 2023, in a virtual meeting format, and at an in-person meeting held on November 14-15,
2023 (the “Meetings”), the Board, including a majority of the Trustees who are not interested persons, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), of the Fund (the “Independent
Trustees”) considered and approved the continuation of each Agreement, as further discussed below.
In connection with the approval of the
Agreements, the Board requested and evaluated information provided by VAIA and the Subadviser which, in the Board’s view, constituted information necessary for the Board to evaluate each of the Agreements. The Board also considered information
furnished throughout the year at regular Board meetings with respect to the services provided by VAIA and the Subadviser, including quarterly performance reports prepared by management containing reviews of investment results and periodic
presentations from the Subadviser with respect to the Fund. The Board noted the affiliation of the Subadviser with VAIA and any potential conflicts of interest.
The Board was separately advised by
independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the Fund and its shareholders. The Board considered all factors that it considered relevant, including those
discussed below. The Board did not identify any one factor as all-important or controlling, and each Trustee may have attributed different weights to the various factors. The Independent Trustees also discussed the proposed approval of the
Agreements in executive sessions with their independent legal counsel at which no representatives of VAIA or the Subadviser were present.
Nature,
Extent and Quality of Services
The Trustees received in advance of the
Meetings various data and information regarding the nature, extent and quality of the services provided under the Agreements, including responses by VAIA and the Subadviser to detailed requests submitted by independent legal counsel to the
Independent Trustees on their behalf, as well as responses by VAIA and the Subadviser to follow-up questions. The Trustees also previously had received presentations by VAIA’s and the Subadviser’s senior management personnel. The
responses to the information requests and the presentations included, among other things, information about the: background, experience and investment philosophy of senior management and investment personnel responsible for managing the Fund;
resources, operations and compliance structure of VAIA and the Subadviser; and investment process, investment strategies, personnel, compliance procedures, and overall performance of VAIA and the Subadviser.
In considering the Agreement with VAIA, the
Board considered VAIA’s process for supervising and managing the Subadviser, including: (a) VAIA’s ability to select and monitor the Subadviser; (b) VAIA’s ability to provide the services necessary to monitor the Subadviser’s
compliance with the Fund’s investment objective, policies and restrictions, as well as to provide other oversight activities; and (c) VAIA’s ability and willingness to identify instances in which the
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE
HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
Subadviser should be replaced and to carry
out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to continue to provide a high
level and quality of services to the Fund; (c) the quality of VAIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services provided by VAIA and its
affiliates to the Fund; (e) VAIA’s supervision of the Fund’s other service providers; and (f) VAIA’s risk management processes. It was noted that an affiliate of VAIA serves as administrator to the Fund. The Board also took into
account its knowledge of VAIA’s management and the quality of the performance of VAIA’s duties, as well as information from the Fund’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures
established pursuant to Rule 38a-1 under the 1940 Act.
With respect to the services provided by the
Subadviser, the Board considered information provided to the Board by the Subadviser, as well as information provided throughout the past year. The Board noted that the Subadviser provided portfolio management, compliance with the Fund’s
investment policies and procedures, compliance with applicable securities laws and assurances thereof. The Board also noted that VAIA’s and the Subadviser’s management of the Fund must be carried out in accordance with the Fund’s
investment objective, policies and restrictions. The Board considered the Subadviser’s portfolio management services, including: (a) the scope of its operations; (b) its portfolio management capabilities; (c) the breadth and depth of its
management, investment and research personnel; and (d) the various support services that it provides to the Fund. The Board considered the investment management process and strategies employed by the Subadviser, and experience and capability of the
Subadviser’s management and other personnel committed by the Subadviser to the Fund. The Board also considered: (a) the quality of the Subadviser’s regulatory and legal compliance policies, procedures and systems; and (b) the
Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account the Subadviser’s risk assessment and monitoring process.
Investment
Performance
The Board
considered performance reports and discussions at Board meetings throughout the year, as well as a report (the “Broadridge Report”) for the Fund prepared by Broadridge Financial Solutions, Inc., an independent third party provider of
investment company data, furnished in connection with the contract renewal process. The Broadridge Report presented the Fund’s performance relative to a peer group of other closed-end funds (the “Performance Universe”) and relevant
indexes, as selected by Broadridge. The Board also considered performance information presented by management and took into account management’s discussion of the same, including the effect of market conditions on the Fund’s performance.
The Board noted that it also reviews on a quarterly basis detailed information about both the Fund’s performance results and portfolio composition, as well as the Subadviser’s investment strategies. The Board noted VAIA’s expertise
and resources in monitoring the performance, investment style and risk-adjusted performance of the Subadviser. The Board also took into account its discussions with management regarding factors that contributed to the performance of the Fund.
The Board noted that the Fund underperformed
the median of its Performance Universe for the 1-, 5-, and 10-year periods ended March 31, 2023 and outperformed the median of its Performance Universe for the year-to-date and 3-year periods ended March 31, 2023. The Board also noted that the Fund
underperformed its benchmark for the 1-, 5-, and 10-year
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE
HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
periods ended March 31, 2023 and
outperformed its benchmark for the year-to-date and 3-year periods ended March 31, 2023. The Trustees discussed the Fund’s performance and the reasons therefor with management.
Management
Fees and Total Expenses
The
Board considered the fees charged to the Fund for advisory services as well as the total expense level of the Fund. This information included comparisons of the Fund’s contractual and net management fee and net total expense level to those of
its peer universe (the “Expense Universe”). In comparing the Fund’s net management fee to that of comparable funds, the Board noted that in the materials presented by management such fee was comprised of advisory fees. The Board
also noted that the subadvisory fees were paid by VAIA out of its management fees rather than paid separately by the Fund. In this regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee
structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The Trustees also considered the fee rates payable by comparable accounts managed by the Subadviser.
In addition to the foregoing, the Board
considered, among other data, the information set forth below with respect to the Fund’s fees and expenses. The Board took into account management’s discussion of the Fund’s expenses, including the type and size of the Fund
relative to the other funds in its Expense Universe.
The Board noted that the Fund’s net
management fees and net total expenses were above the medians of the Expense Universe.
Profitability
The Board also considered
certain information relating to profitability that had been provided by VAIA. In this regard, the Board considered information regarding the overall profitability of VAIA for its management of the Fund. In addition to the fees paid to VAIA and its
affiliates, including the Subadviser, the Board considered other benefits derived by VAIA or its affiliates from their relationships with the Fund. The Board reviewed the methodology used to allocate costs to the Fund, taking into account the fact
that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. The Board concluded that the profitability to VAIA and its affiliates from the Fund was within a
reasonable range in light of the quality of the services rendered to the Fund by VAIA and its affiliates, and other factors considered.
In considering the profitability to the
Subadviser in connection with its relationship to the Fund, the Board noted that the fee payable under the Subadvisory Agreement is paid by VAIA out of the fee that VAIA receives under the Advisory Agreement, and not by the Fund. In considering the
fee payable by VAIA to the Subadviser, the Board noted that, because the Subadviser is an affiliate of VAIA, its profitability should be considered as part of the profitability of VAIA and, therefore, the Board considered the profitability of VAIA
and the Subadviser together. For each of the above reasons, the Board concluded that the separate profitability to the Subadviser and its affiliates from their relationships with the Fund was not a material factor in approval of the Subadvisory
Agreement.
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE
HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
Economies
of Scale
The Board considered
the extent to which economies of scale would be realized as the Fund’s assets grow, and whether the fee levels reflect these economies of scale for the benefit of Fund shareholders. The Board noted that economies of scale may develop for
certain funds as their assets increase and their fixed fund-level expenses decline as a percentage of assets, but that closed-end funds such as the Fund typically do not have the ability to increase substantially their asset base as do open-end
funds.
The Board also considered the
advisory fee rate in relation to the current asset size of the Fund, and whether any economies of scale exist at that size. The Board concluded that, given the Fund’s closed-end structure, no changes to the Fund’s advisory and
subadvisory fee structure were necessary or advisable at this time. The Board agreed that it would be appropriate to monitor this matter in the event that the assets of the Fund were to increase substantially via a secondary or rights offering,
capital appreciation, reinvested dividends, the use of increased leverage or some other means.
Other
Factors
The Board considered
information regarding potential “fallout” or ancillary benefits that may be realized by VAIA, the Subadviser and their respective affiliates as a result of their relationships with the Fund. The Board noted that an affiliate of VAIA
provides administrative services to the Fund. The Board noted management’s discussion of the fact that, while the Subadviser is an affiliate of VAIA, there are no other direct benefits received by the Subadviser or VAIA in providing investment
advisory services to the Fund, other than the fees earned under the respective Agreement.
The Trustees concluded that potential
“fallout” benefits that VAIA and the Subadviser may receive, such as greater name recognition or increased ability to obtain research and brokerage services, as applicable, may, in some cases, benefit the Fund.
Conclusion
After considering all factors
that it considered relevant, the Board, including a majority of the Independent Trustees, approved the Agreements with respect to the Fund.
FUND MANAGEMENT TABLES
(Unaudited)
Information pertaining to the Trustees and
Officers of the Fund as of the date of the issuance of this report is set forth below. The address of each individual, unless otherwise noted, is c/o Virtus Stone Harbor Emerging Markets Income Fund, One Financial Plaza, Hartford, CT 06103.
Independent Trustees
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Burke,
Donald C.
YOB: 1960
Served Since: 2022, Class II
100 Portfolios |
Private
investor (since 2009). Formerly, President and Chief Executive Officer, BlackRock U.S. Funds (2007 to 2009); Managing Director, BlackRock, Inc. (2006 to 2009); and Managing Director, Merrill Lynch Investment Managers (1990 to 2006). |
Trustee
(since May 2023) and Advisory Board Member (May 2023), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity & Convertible Income Fund; Advisory Board Member
(since May 2023), Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II and Virtus Diversified Income & Convertible Fund; Trustee (since 2022), Virtus Stone Harbor
Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff &
Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (50 portfolios), Virtus Variable
Insurance Trust (8 portfolios) and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2014) closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director, Avista Corp. (energy company) (since 2011);
Trustee, Goldman Sachs Fund Complex (2010 to 2014); and Director, BlackRock Luxembourg and Cayman Funds (2006 to 2010). |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Cogan,
Sarah E.
YOB: 1956
Served Since: 2022, Class II
97 Portfolios |
Retired
Partner, Simpson Thacher & Bartlett LLP (“STB”) (law firm) (since 2019); Director, Girl Scouts of Greater New York (since 2016); Trustee, Natural Resources Defense Council, Inc. (since 2013); and formerly, Partner, STB (1989 to
2018). |
Trustee
(since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor
Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member
(February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee (since 2019), Virtus Artificial Intelligence
& Technology Opportunities Fund, Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Equity &
Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund; and Trustee (since 2019), PIMCO Closed-End Funds* (30 portfolios). |
DeCotis,
Deborah A.
YOB: 1952
Served Since: 2022, Class I
97 Portfolios |
Director,
Cadre Holdings Inc. (since 2022); Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); Member, Council on Foreign Relations (since 2013); and Trustee, Smith College (since 2017). Formerly,
Director, Watford Re (2017 to 2021); Co-Chair Special Projects Committee, Memorial Sloan Kettering (2005 to 2015); and Trustee, Stanford University (2010 to 2015). |
Trustee
(since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor
Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member
(February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2017), Virtus Convertible & Income 2024 Target
Term Fund; Trustee (since 2015), Virtus Diversified Income & Convertible Fund; Trustee (since 2014), Virtus Investment Trust (13 portfolios); Trustee (since 2011), Virtus Strategy Trust (8 portfolios); Trustee (since 2011), Virtus Convertible
& Income Fund, Virtus Convertible & Income Fund II, Virtus Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund; and Trustee (since 2011), PIMCO Closed-End Funds* (30 portfolios). |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Drummond,
F. Ford
YOB: 1962
Served Since: 2022, Class III
97 Portfolios |
President
(since 1998), F.G. Drummond Ranches, Inc.; and Director (since 2015), Texas and Southwestern Cattle Raisers Association. Formerly, Chairman, Oklahoma Nature Conservancy (2019 to 2020); Trustee (since 2014), Frank Phillips Foundation; Trustee (since
2008), Oklahoma Nature Conservancy; Board Member (2006 to 2020) and Chairman (2016 to 2018), Oklahoma Water Resources Board; Director (1998 to 2008), The Cleveland Bank; and General Counsel (1998 to 2008), BMIHealth Plans (benefits administration).
|
Trustee
(since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios), and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor
Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member
(February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2017), Virtus Convertible & Income 2024 Target
Term Fund; Trustee (since 2015), Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity &
Convertible Income Fund; Trustee (since 2014), Virtus Strategy Trust (8 portfolios); Director (since 2011), Bancfirst Corporation; and Trustee (since 2006), Virtus Investment Trust (13 portfolios). |
Harris,
Sidney E.
YOB: 1949
Served Since: 2022, Class III
90 Portfolios |
Private
Investor (since 2021); Dean Emeritus (since 2015), Professor (2015 to 2021 and 1997 to 2014), and Dean (1997 to 2004), J. Mack Robinson College of Business, Georgia State University. |
Trustee
(since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger
Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment
Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global
Multi-Sector Income Fund; Trustee (since 2019), Mutual Fund Directors Forum; Trustee (since 2017), Virtus Mutual Fund Family (50 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (4 portfolios);
Trustee (2013 to 2020) and Honorary Trustee (since 2020), KIPP Metro Atlanta; Director (1999 to 2019), Total System Services, Inc.; Trustee (2004 to 2017), RidgeWorth Funds; Chairman (2012 to 2017), International University of the Grand Bassam
Foundation; Trustee (since 2012), International University of the Grand Bassam Foundation; and Trustee (2011 to 2015), Genspring Family Offices, LLC. |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Mallin,
John R.
YOB: 1950
Served Since: 2022, Class I
90 Portfolios |
Partner/Attorney
(since 2003), McCarter & English LLP (law firm) Real Property Practice Group; and Member (2014 to 2022), Counselors of Real Estate. |
Trustee
(since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger
Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment
Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global
Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (50 portfolios) and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2019), 1892 Club, Inc. (non-profit); Director (2013 to 2020), Horizons, Inc.
(non-profit); and Trustee (since 1999), Virtus Variable Insurance Trust (8 portfolios). |
McDaniel,
Connie D.
YOB: 1958
Served Since: 2022, Class II
97 Portfolios |
Retired
(since 2013). Vice President, Chief of Internal Audit, Corporate Audit Department (2009 to 2013); Vice President Global Finance Transformation (2007 to 2009); and Vice President and Controller (1999 to 2007), The Coca-Cola Company. |
Trustee
(since May 2023) and Advisory Board Member (May 2023), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income
Fund II, Virtus Diversified Income & Convertible Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity & Convertible Income Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022
to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff &
Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Director (since 2019), Global Payments Inc.; Chairperson (since 2021), Governance
& Nominating Committee, Global Payments Inc.; Trustee (since 2017), Virtus Mutual Fund Family (50 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2021), North
Florida Land Trust; Director (2014 to 2019), Total System Services, Inc.; Member (2011 to 2022) and Chair (2014 to 2016), Georgia State University, Robinson College of Business Board of Advisors; and Trustee (2005 to 2017), RidgeWorth Funds.
|
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
McLoughlin,
Philip R.
YOB: 1946
Served Since: 2022, Class III
Chairman
100 Portfolios |
Private
investor since 2010. |
Trustee
and Chairman (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee and Chairman (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee and Chairman (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment
Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Chairman (since 2023) and Trustee (since 2021), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income
& Convertible Fund, Virtus Equity & Convertible Income Fund and Virtus Dividend, Interest & Premium Strategy Fund; Chairman (since 2023), Trustee (since 2022) and Advisory Board Member (2021), Virtus Convertible & Income 2024 Target
Term Fund and Virtus Convertible & Income Fund; Director and Chairman (since 2016), Virtus Total Return Fund Inc.; Director and Chairman (2016 to 2019), the former Virtus Total Return Fund Inc.; Director and Chairman (2014 to 2021), Duff &
Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (4 portfolios); Trustee and Chairman (since 2011), Virtus Global Multi-Sector Income Fund; Chairman and Trustee (since 2003),
Virtus Variable Insurance Trust (8 portfolios); Director (since 1995), closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director (1991 to 2019) and Chairman (2010 to 2019), Lazard World Trust Fund (closed-end
investment firm in Luxembourg); and Trustee (since 1989) and Chairman (since 2002), Virtus Mutual Fund Family (50 portfolios). |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
McNamara,
Geraldine M.
YOB: 1951
Served Since: 2022, Class III
100 Portfolios |
Private
investor (since 2006); and Managing Director, U.S. Trust Company of New York (1982 to 2006). |
Trustee
(since May 2023) and Advisory Board Member (January 2023 to May 2023), Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund and Virtus Dividend, Interest & Premium
Strategy Fund; Trustee (since 2023), Virtus Artificial Intelligence & Technology Opportunities Fund and Virtus Equity & Convertible Income Fund; Advisory Board Member (since 2023), Virtus Convertible & Income 2024 Target Term Fund;
Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust
(13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector
Income Fund; Trustee (since 2016) Virtus Alternative Solutions Trust (4 portfolios); Trustee (since 2015), Virtus Variable Insurance Trust (8 portfolios); Director (since 2003), closed-end funds managed by Duff & Phelps Investment Management Co.
(3 funds); and Trustee (since 2001), Virtus Mutual Fund Family (50 portfolios). |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Walton,
R. Keith
YOB: 1964
Served Since: 2022, Class I
97 Portfolios |
Senior
Adviser (since 2022), Brightwood Capital LLC; Venture and Operating Partner (2020 to 2021), Plexo Capital, LLC; Venture Partner (2019 to 2021) and Senior Adviser (2018 to 2019), Plexo, LLC; and Partner (since 2006), Global Infrastructure Partners.
Formerly, Managing Director (2020 to 2021), Lafayette Square Holding Company LLC; Senior Adviser (2018 to 2019), Vatic Labs, LLC; Executive Vice President, Strategy (2017 to 2019), Zero Mass Water, LLC; and Vice President, Strategy (2013 to 2017),
Arizona State University. |
Trustee
(since September 2023) and Advisory Board Member (2022 to September 2023), Virtus Convertible & Income 2024 Target Term Fund; Trustee (since May 2023) and Advisory Board Member (2022 to May 2023), Virtus Convertible & Income Fund II and
Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since July 2022) and Advisory Board Member (January 2022 to July 2022), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income Fund and
Virtus Equity & Convertible Income Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2022), Virtus Diversified Income
& Convertible Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus
Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee (since 2020) Virtus Alternative Solutions Trust (4 portfolios), Virtus Variable Insurance Trust (8 portfolios) and
Virtus Mutual Fund Family (50 portfolios); Director (since 2017), certain funds advised by Bessemer Investment Management LLC; Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2016), Virtus Global
Multi-Sector Income Fund; Director (2006 to 2019), Systematica Investments Limited Funds; Director (2006 to 2017), BlueCrest Capital Management Funds; Trustee (2014 to 2017), AZ Service; Director (since 2004), Virtus Total Return Fund Inc.; and
Director (2004 to 2019), the former Virtus Total Return Fund Inc. |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
Zino,
Brian T.
YOB: 1952
Served Since: 2022, Class II
97 Portfolios |
Retired.
Various roles at J. & W. Seligman & Co. Incorporated (1982 to 2009), including President (1994 to 2009). |
Trustee
(since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger
Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment
Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee (since 2022) and Advisory Board Member (2021), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income 2024 Target Term Fund, Virtus
Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since 2020)
Virtus Alternative Solutions Trust (4 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (50 portfolios); Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since
2016), Virtus Global Multi-Sector Income Fund; Director (since 2014), Virtus Total Return Fund Inc.; Director (2014 to 2019), the former Virtus Total Return Fund Inc.; Trustee (since 2011), Bentley University; Director (1986 to 2009) and President
(1994 to 2009), J&W Seligman Co. Inc.; Director (1998 to 2009), Chairman (2002 to 2004) and Vice Chairman (2000 to 2002), ICI Mutual Insurance Company; Member, Board of Governors of ICI (1998 to 2008). |
* PIMCO Closed-End Funds are not part of the Virtus’ Fund Complex: PCM Fund, Inc.; PIMCO Access Income Fund; PIMCO California
Flexible Municipal Income Fund; PIMCO California Municipal Income Fund; PIMCO California Municipal Income Fund II; PIMCO California Municipal Income Fund Ill; PIMCO Corporate & Income Strategy Fund; PIMCO Corporate & Income Opportunity Fund;
PIMCO Dynamic Income Fund; PIMCO Dynamic Income Opportunities Fund; PIMCO Dynamic Income Strategy Fund; PIMCO Flexible Credit Income Fund; PIMCO Flexible Emerging Markets Income Fund; PIMCO Flexible Municipal Income Fund; PIMCO Global StocksPLUS® & Income Fund; PIMCO High Income Fund; PIMCO Income Strategy Fund; PIMCO Income Strategy Fund II; PIMCO Managed Accounts Trust (5 portfolios); PIMCO Municipal Income
Fund; PIMCO Municipal Income Fund II; PIMCO Municipal Income Fund III; PIMCO New York Municipal Income Fund; PIMCO New York Municipal Income Fund II; PIMCO New York Municipal Income Fund Ill; and PIMCO Strategic Income Fund, Inc.
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Interested Trustee
The individual listed below is an
“interested person” of the Fund, as defined in Section 2(a)(19) of the 1940 Act, as amended, and the rules and regulations thereunder.
Name, Year of Birth,
Length of Time Served
and Number of
Portfolios in Fund
Complex Overseen by
Trustee |
Principal
Occupation(s) During Past
5 Years |
Other
Trusteeships Held by Trustee |
Aylward,
George R.**
Trustee and President
YOB: 1964
Served Since: 2022, Class I
104 Portfolios |
Director,
President and Chief Executive Officer (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various senior officer positions with Virtus affiliates (since 2005). |
Director
(since 2023), Stone Harbor Investment Funds plc (21 sub-funds), Stone Harbor Global Funds plc (27 sub-funds) and Virtus Global Funds ICAV (5 portfolios); Trustee, President and Chief Executive Officer (since 2022), Virtus Stone Harbor Emerging
Markets Income Fund; Trustee, President and Chief Executive Officer (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Member, Board of Governors of the Investment Company Institute (since 2021); Trustee and President (since
2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios),
Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee, President and Chief Executive Officer (since 2021), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income 2024
Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy
Fund; Chairman and Trustee (since 2015), Virtus ETF Trust II (7 portfolios); Director, President and Chief Executive Officer (2014 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and President (since 2013), Virtus
Alternative Solutions Trust (4 portfolios); Director (since 2013), Virtus Global Funds, plc (5 portfolios); Trustee (since 2012) and President (since 2010), Virtus Variable Insurance Trust (8 portfolios); Trustee, President and Chief Executive
Officer (since 2011), Virtus Global Multi-Sector Income Fund; Trustee and President (since 2006) and Executive Vice President (2004 to 2006), Virtus Mutual Fund Family (50 portfolios); Director, President and Chief Executive Officer (since 2006),
Virtus Total Return Fund Inc.; and Director, President and Chief Executive Officer (2006 to 2019), the former Virtus Total Return Fund Inc. |
**Mr. Aylward is an “interested person,” as
defined in the 1940 Act, by reason of his position as President and Chief Executive Officer of Virtus Investment Partners, Inc. (“Virtus”), the ultimate parent company of the Adviser, and various positions with its affiliates, including
the Adviser.
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Officers Who Are Not Trustees
Name
and Year of
Birth |
Position(s) Held
with Fund and
Length of
Time Served |
Principal Occupation(s) During Past 5 Years
|
Batchelar,
Peter J.
YOB: 1970 |
Senior
Vice President (since 2022). |
Senior
Vice President, Product Development (since 2017), Vice President, Product Development (2008 to 2017) and various officer positions (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various officer positions
(since 2008) of various registered funds advised by subsidiaries of Virtus Investment Partners, Inc. |
Bradley,
W. Patrick
YOB: 1972 |
Executive
Vice President, Chief Financial Officer and Treasurer (since 2022). |
Executive
Vice President, Fund Services (since 2016), Senior Vice President, Fund Services (2010 to 2016) and various officer positions (since 2004), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Director (since 2023), Stone Harbor
Investment Funds plc and Stone Harbor Global Funds plc; Director (since 2019), Virtus Global Funds ICAV; Director (since 2013), Virtus Global Funds, plc; various officer positions (since 2006) of various registered funds advised by subsidiaries of
Virtus Investment Partners, Inc.; and Member (since 2022), BNY Mellon Asset Servicing Client Advisory Board. |
Branigan,
Timothy
YOB: 1976 |
Vice
President and Fund Chief Compliance Officer (since 2022) and Assistant Vice President and Deputy Fund Chief Compliance Officer (April to May 2022). |
Various
officer positions (since 2019) of various registered funds advised by subsidiaries of Virtus Investment Partners, Inc. |
Chisolm,
Daphne
YOB: 1969 |
Vice
President, Counsel and Assistant Secretary (since 2023). |
Vice
President and Senior Counsel (since 2023), Virtus Investment Partners, Inc.; Attorney at Law engaged in private practice as a solo practitioner (2018 to 2023); and various officer positions (since 2023) of various registered funds advised by
subsidiaries of Virtus Investment Partners, Inc. |
Fromm,
Jennifer
YOB: 1973 |
Vice
President, Chief Legal Officer, Counsel and Secretary (since 2022). |
Vice
President (since 2016) and Senior Counsel, Legal (since 2007) and various officer positions (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various officer positions (since 2008) of various registered funds
advised by subsidiaries of Virtus Investment Partners, Inc. |
Hackett,
Amy
YOB: 1968 |
Vice
President and Assistant Treasurer (since 2022). |
Vice
President (since 2010) and Assistant Vice President (2007 to 2010), Fund Services, Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various officer positions (since 2007) of various registered funds advised by subsidiaries
of Virtus Investment Partners, Inc. |
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Name
and Year of
Birth |
Position(s) Held
with Fund and
Length of
Time Served |
Principal Occupation(s) During Past 5 Years
|
Krishnan,
Suneeta
YOB: 1965 |
Vice
President and Assistant Treasurer (since 2022). |
Vice
President (since 2017) and Assistant Treasurer (since 2007), Mutual Fund Administration, Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various officer positions (since 2009) of various registered funds advised by
subsidiaries of Virtus Investment Partners, Inc. |
Rahman,
Mahmood
YOB: 1967 |
Assistant
Vice President (since 2022). |
Vice
President (since 2023), Tax Director (since 2020) and Assistant Vice President, Fund Administration (2020 to 2023), Virtus Investment Partners, Inc.; Assistant Vice President (since 2021) of various registered funds advised by subsidiaries of
Virtus Investment Partners, Inc.; and Assistant Treasurer and Tax Director, Grantham, Mayo, Van Otterloo & Co. LLC (2007 to 2019). |
Short,
Julia R.
YOB: 1972 |
Senior
Vice President (since 2022). |
Senior
Vice President, Product Development (since 2017), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Senior Vice President (since 2017) of various registered funds advised by subsidiaries of Virtus Investment Partners, Inc.; and
Managing Director, Product Manager, RidgeWorth Investments (2004 to 2017). |
Smirl,
Richard W.
YOB: 1967 |
Executive
Vice President (since 2022). |
Chief
Operating Officer (since 2021), Virtus Investment Partners, Inc.; Executive Vice President (since 2021), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Executive Vice President (since 2021) of various registered funds advised
by subsidiaries of Virtus Investment Partners, Inc.; Chief Operating Officer (2018 to 2021), Russell Investments; Executive Director (Jan. to July 2018), State of Wisconsin Investment Board; and Partner and Chief Operating Officer (2004 to 2018),
William Blair Investment Management. |
Thaker,
Nikita K.
YOB: 1978 |
Vice
President, Controller and Assistant Treasurer (since 2022) |
Vice
President (since 2021) and Assistant Vice President (2016 to 2021), Mutual Fund Administration, Virtus Investment Partners, Inc. and/or certain of its subsidiaries; and various officer positions (since 2013) of various registered funds advised by
subsidiaries of Virtus Investment Partners, Inc. |
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VIRTUS STONE HARBOR EMERGING
MARKETS INCOME FUND
101 Munson Street
Greenfield, MA 01301-9668
Board of Trustees
George R. Aylward
Donald C. Burke
Sarah E. Cogan
Deborah A. DeCotis
F. Ford Drummond
Sidney E. Harris
John R. Mallin
Connie D. McDaniel
Philip R. McLoughlin, Chair
Geraldine M. McNamara
R. Keith Walton
Brian T. Zino
Principal Officers
George R. Aylward, President
and Chief Executive Officer
Peter Batchelar, Senior Vice President
W. Patrick Bradley, Executive
Vice President, Chief Financial Officer, and Treasurer
Timothy Branigan, Vice
President and Fund Chief Compliance Officer
Jennifer Fromm, Vice President,
Chief Legal Officer, Counsel and Secretary
Julia R. Short, Senior Vice
President
Richard W. Smirl, Executive Vice President
Investment Adviser
Virtus Alternative Investment Advisers, Inc.
One Financial Plaza
Hartford, CT 06103-2608
Administrator
Virtus Fund Services, LLC
One Financial Plaza
Hartford, CT 06103
Custodian
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286-1048
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
2001 Market Street
Philadelphia, PA 19103-7042
How to Contact Us
| Shareholder
Services |
1-866-270-7788
|
Important Notice to Shareholders
The Securities and Exchange Commission has modified mailing regulations for semiannual and annual shareholder fund reports to allow mutual fund companies to send a single copy of these reports to shareholders who share
the same mailing address. If you would like additional copies, please call Mutual Fund Services at 1-866-270-7788.
Virtus Stone Harbor Emerging Markets Income Fund
c/o Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078
For more information about
Virtus Closed-End Funds, please
contact us
at 1-866-270-7788
or closedendfunds@virtus.com
or visit Virtus.com.
| Item 1. |
Reports to Stockholders (cont.). |
| |
(a) |
The registrant, as of the end of the period covered by this report, has adopted a code of ethics that
applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or
a third party. |
| |
(c) |
There have been no amendments during the period covered by this report, to a provision of the code of ethics
that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the
registrant or a third party, that relates to any element of the code of ethics described in Item 2(b) of the instructions for completion of Form N-CSR. |
| |
(d) |
The registrant has not granted any waivers, during the period covered by this report, including an implicit
waiver, from a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether
these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of the instructions for completion of this Item. |
| Item 3. |
Audit Committee Financial Expert. |
|
|
|
| (a)(1) |
|
The Registrant’s Board of Trustees has determined that the Registrant has at least one “audit committee financial expert” serving on its Audit Committee. |
|
|
| (a)(2) |
|
As of the end of the period covered by the report, the registrant’s board of trustees determined that each of Donald C. Burke, Connie D. McDaniel and Brian T. Zino is qualified to serve as an audit committee financial expert
serving on its audit committee and that each is “independent,” as defined by Item 3 of Form N-CSR. |
|
|
| (a)(3) |
|
Not applicable. |
| Item 4. |
Principal Accountant Fees and Services. |
Audit Fees
| |
(a) |
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the
principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $43,153
for 2023 and $55,900 for 2022. |
Audit-Related Fees
| |
(b) |
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item are $0 for 2023 and $0 for 2022. |
Tax Fees
| |
(c) |
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and tax planning are $0 for 2023 and $5,000 for 2022. |
“Tax
Fees” are those primarily associated with review of the Fund’s tax provision and qualification as a regulated investment company (RIC) in connection with audits of the Fund’s financial statement, review of year-end distributions by the Fund to avoid excise tax, periodic discussion with management on tax issues affecting the Fund, and reviewing and signing the Fund’s federal income tax returns.
All Other Fees
| |
(d) |
The aggregate fees billed in each of the last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 for 2023 and $0 for 2022. |
| |
(e)(1) |
Disclose the audit committee’s pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
The Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) Board has adopted policies and procedures with regard to the pre-approval of services provided by PwC. Audit, audit-related and tax compliance services provided to the Fund on an annual basis require specific pre-approval by the Board.
As noted above, the Board must also approve other non-audit services provided to the Fund and those non-audit services provided to the Fund’s Affiliate Service
Providers that related directly to the operations and financial reporting of the Fund. Certain of these non-audit services that the Board believes are a) consistent with the SEC’s auditor independence
rules and b) routine and recurring services that will not impair the independence of the independent auditors may be approved by the Board without consideration on a specific
case-by-case basis (“general pre-approval”).
The Audit Committee has determined that the Chair of the Audit Committee, may provide pre-approval for
such services that meet the above requirements but are not included in the general pre-approval in the event such approval is sought between regularly scheduled meetings. In any event, the Board is informed of
each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting.
| |
(e)(2) |
The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved
by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: |
(b) 0%
(c) 0%
(d) N/A
| |
(f) |
The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s
financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
| |
(g) |
The aggregate non-audit fees billed by the registrant’s accountant
for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 for 2023 and
$5,000 for 2022. |
| |
(h) |
The registrant’s audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
| Item 5. |
Audit Committee of Listed Registrants. |
| |
a) |
The registrant has a separately designated audit committee. During the period covered by this report the
members of the audit committee were Donald C. Burke, Deborah A. DeCotis, John R. Mallin, Connie D. McDaniel and Brian T. Zino. |
| |
(a) |
Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is
included as part of the report to shareholders filed under Item 1(a) of this form. |
| Item 7. |
Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. |
The Fund has adopted a Policy Regarding Proxy Voting (the “Policy”) stating the
Fund’s intention to exercise stock ownership rights with respect to portfolio securities in a manner that is reasonably anticipated to further the best economic interests of shareholders of the Fund. The Fund or its voting delegates will
endeavor to analyze and vote all proxies that are likely to have financial implications, and where appropriate, to participate in corporate governance, shareholder proposals, management communications and legal proceedings. The Fund or its voting
delegates must also identify potential or actual conflicts of interest in voting proxies and must address any such conflict of interest in accordance with the Policy.
In the absence of a specific direction to the contrary from the Board, the Adviser or the subadviser that is managing the Fund is responsible for voting
proxies for such fund, or for delegating such responsibility to a qualified, independent organization engaged by the Adviser or respective subadviser to vote proxies on its behalf. The applicable voting party will vote proxies in accordance with the
Policy or its own policies and procedures, which must be reasonably designed to further the best economic interests of the affected fund shareholders. Because the Policy and the applicable voting party’s policies and procedures used to vote
proxies for the funds both are designed to further the best economic interests of the affected fund shareholders, they are not expected to conflict with one another although the types of factors considered by the applicable voting party under its
own policies and procedures may be in addition to or different from the ones listed below for the Policy.
The Policy specifies the types of factors to be
considered when analyzing and voting proxies on certain issues when voting in accordance with the Policy, including, but not limited to:
| |
• |
|
Anti-takeover measures – the overall long-term financial performance of the target company relative to its
industry competition. |
| |
• |
|
Corporate Governance Matters – tax and economic benefits of changes in the state of incorporation; dilution
or improved accountability associated with changes in capital structure. |
| |
• |
|
Contested elections – the qualifications of all nominees; independence and attendance record of board and
key committee members; entrenchment devices in place that may reduce accountability. |
| |
• |
|
Stock Option and Other Management Compensation Issues—executive pay and spending on perquisites,
particularly in conjunction with sub-par performance and employee layoffs. |
| |
• |
|
Shareholder proposals – whether the proposal is likely to enhance or protect shareholder value; whether
identified issues are more appropriately or effectively addressed by legal or regulatory changes; whether the issuer has already appropriately addressed the identified issues; whether the proposal is unduly burdensome or prescriptive; whether the
issuer’s existing approach to the identified issues is comparable to industry best practice. |
The Fund and its voting delegates seek to avoid actual or perceived conflicts of interest of Fund shareholders,
on the one hand, and those of the Adviser, subadviser, other voting delegate, Distributor, or any affiliated person of the Fund, on the other hand.
Depending on the type and materiality, the Board or its delegates may take the following actions, among others, in addressing any material conflicts of
interest that arise with respect to voting (or directing voting delegates to vote): (i) rely on the recommendations of an established, independent third party proxy voting vendor; (ii) vote pursuant to the recommendation of the proposing
delegate; (iii) abstain; (iv) where two or more delegates provide conflicting requests, vote shares in proportion to the assets under management of each proposing delegate; (v) vote shares in the same proportion as the vote of all other
shareholders of such issuer; or (vi) the Adviser may vote proxies where the subadviser has a direct conflict of interest. The Policy requires each Adviser/subadviser that is a voting delegate to notify the Chief Compliance Officer of the Fund
(or, in the case of a subadviser, the Chief Compliance Officer of the Adviser) of any actual or potential conflict of interest that is identified, and provide a recommended course of action for protecting the best interests of the affected
fund’s shareholders. No Adviser/subadviser or other voting delegate may waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board (or the Executive Committee thereof) or the Chief Compliance
Officer of the Fund.
The Policy further imposes certain record-keeping and reporting requirements on each Adviser/subadviser or other voting delegate.
Information regarding how the funds voted proxies relating to portfolio securities during the most recent
12-month period ended September 30 will be available, no later than August 31 of each year, free of charge by calling, toll-free, 866.270.7788, or on the SEC’s Web site at www.sec.gov.
During the period of the report, any proxies for the Fund were handled by the Fund’s subadviser, Stone Harbor Investment Partners, a division of Virtus
Fixed Income Advisers, LLC (“Stone Harbor”). Following is a summary of Stone Harbor’s proxy voting policies.
In voting proxies, Stone
Harbor is responsible for making investment decisions that seek to add value to its client assets and that are in the best interest of its clients. Stone Harbor has adopted proxy voting policies, general guidelines and procedures. As an adviser that
primarily invests in fixed-income securities, Stone Harbor does not frequently have to vote proxies on behalf of its clients. In voting proxies, Stone Harbor is guided by general fiduciary principles. Stone Harbor’s goal is to act prudently,
solely in the best interest of the beneficial owners of the accounts it manages. Stone Harbor attempts to consider all factors of its vote that could affect the value of the investment and will vote proxies in the manner that it believes will be
consistent with efforts to maximize such value.
It is anticipated that Stone Harbor will generally follow its proxy voting general guidelines. If deemed
to be in the best interests of a client, a portfolio manager may override the general guidelines without consultation with Stone Harbor’s Compliance & Risk Committee, unless the situation involves a conflict of interest. All overrides
are subject to review by the Stone Harbor Compliance & Risk Committee.
In voting client proxies, Stone Harbor may encounter various potential
conflicts of interest, such as when voting proxies pertaining to existing clients, potential clients, existing vendors, or lenders. In any case involving a potential or known conflict of interest, Stone Harbor personnel will consult with the Stone
Harbor Compliance & Risk Committee in an attempt to resolve an actual or potential conflict. In addition, the Stone Harbor Compliance & Risk Committee reviews the proxy voting guidelines and portfolio manager overrides on at least
an annual basis.
A complete copy of Stone Harbor’s current Proxy Voting Policies, Procedures and Guidelines may be obtained
by sending a written request to Stone Harbor Investment Partners, LLC, Attn: Compliance, 31 West 52nd Street, 16th Floor, New York, New York 10019.
| Item 8. |
Portfolio Managers of Closed-End Management Investment Companies.
|
| (a)(1) |
Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio
Manager(s) or Management Team Members |
Peter J. Wilby, CFA. Mr. Wilby is the
co-chief investment officer of SHIP strategies and co-founder of Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners
(“Virtus”).
Prior to founding Stone Harbor in 2006, Mr. Wilby was a chief investment officer of North American Fixed Income at Citigroup
Asset Management, as well as a member of Citigroup Asset Management’s executive committee. Additionally, he served as senior portfolio manager responsible for directing investment policy and strategy for all emerging markets debt and high yield
portfolios. Before joining Citigroup, Mr. Wilby was the head of fixed income, a senior portfolio manager for emerging markets debt and high yield, and a member of the investment policy committee at Salomon Brothers Asset Management. Earlier in
his career, Mr. Wilby was a fixed income portfolio manager specializing in high yield debt securities at Prudential Investment Co., and also held the role of director of the credit research unit, responsible for all corporate and sovereign
credit research. He began his career at Deloitte, Haskin & Sells where he served in the Audit and Tax Department.
Mr. Wilby earned a B.B.A.
and an M.B.A. in accounting from Pace University. He is a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA
Institute and the CFA Society New York. Mr. Wilby is a certified public accountant. He began working in the investment industry in 1980.
James E.
Craige, CFA. Mr. Craige is a co-chief investment officer, head of emerging markets, and co-founder of Stone Harbor Investment Partners, an affiliated manager of
Virtus Investment Partners. In this role. Mr. Craige heads a team that manages emerging markets and global high yield portfolios for institutions including public and private pension plans, sovereign wealth funds, and insurance companies
globally.
Prior to helping found Stone Harbor in 2006, Mr. Craige was a managing director and senior portfolio manager for emerging markets debt,
and a member of the investment policy committee at Citigroup Asset Management. He held similar positions at Salomon Brothers, which he joined in 1992, prior to it being purchased by Citigroup in 1998. He began his career as a fixed income trading
associate at Lehman Brothers in 1989.
Mr. Craige earned a B.S. in finance from the University of Vermont and serves on the Board of Advisors for the
Grossman School of Business. He is a Chartered Financial Analyst® (CFA®) charterholder and member of the CFA Institute and the CFA
Society New York. He began working in the investment industry in 1988.
Kumaran Damodaran, PhD. Mr. Damodaran is a portfolio manager for
emerging markets debt, global sovereign, and asset allocation at Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners.
Prior to joining Stone Harbor in 2015, Mr. Damodaran was the lead emerging markets macro portfolio manager at GLG Partners in London. Previously, he was
an executive vice president and emerging markets portfolio manager at PIMCO in Newport Beach, California. Before joining PIMCO, Mr. Damodaran was a senior vice president and trader in Latin American local market rates at Lehman Brothers in New
York. Earlier in his career, he served as a director at Credit Suisse where he held various positions in emerging markets credit, rates, and currency derivatives trading in both London and New York.
Mr. Damodaran earned a Ph.D. in theoretical physics from Cambridge University as a Marshall Scholar and
National Science Foundation graduate fellow. He earned an A.B. in physics with a certificate in applied and computational mathematics from Princeton University. He began working in the investment industry in 2000.
Stuart Sclater-Booth. Mr. Sclater-Booth is a portfolio manager for emerging markets debt, global sovereign, and asset allocation at Stone Harbor
Investment Partners, an affiliated manager of Virtus Investment Partners.
Prior to joining Stone Harbor in 2014, Mr. Sclater-Booth was a managing
director / head of emerging markets desk strategy at Goldman Sachs. Before joining Goldman Sachs, he served as executive director / global head of emerging markets macro strategy at J.P. Morgan Chase Securities. There, he held a series of roles,
including executive director of emerging markets proprietary trading and vice president / head of trade strategy. Earlier in his career, Mr. Sclater-Booth was a research assistant in the U.S. macro research department at PaineWebber and an
assistant economist in the domestic research department at the Federal Reserve Bank of New York.
Mr. Sclater-Booth earned a B.A. in economics from
Vassar College and an M.A. in economics from Boston University. He began working in the investment industry in 1992.
David A. Oliver, CFA.
Mr. Oliver is a portfolio manager for emerging markets debt, global sovereign at Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners.
Prior to joining Stone Harbor in 2008, Mr. Oliver was a managing director for sales and trading in emerging markets debt at Citigroup Global Markets.
Mr. Oliver earned a B.A. from Northwestern University, an M.A from the University of Delaware, and an M.B.A. from the Tuck School of Business at
Dartmouth College. He is a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA Institute and the CFA Society New
York. He began working in the investment industry in 1986.
| (a)(2) |
Other Accounts Managed by Portfolio Manager(s) or Management Team Member and Potential Conflicts of Interest
|
There may be certain inherent conflicts of interest that arise in connection with the portfolio managers’ management of the
Fund’s investments and the investments of any other accounts they manage. Such conflicts could include the aggregation of orders for all accounts managed by a particular portfolio manager, the allocation of purchases across all such accounts,
the allocation of IPOs and any soft dollar arrangements that the adviser/subadviser may have in place that could benefit the Fund and/or such other accounts. The Board of Trustees has adopted policies and procedures designed to address any such
conflicts of interest to ensure that all transactions are executed in the best interest of the Fund’s shareholders. Each adviser/subadviser is required to certify its compliance with these procedures on a quarterly basis. There have been no
material compliance issues with respect to any of these policies and procedures during the Fund’s most recent fiscal year. Additionally, there are no material conflicts of interest between the investment strategy of the Fund and the investment
strategy of other accounts managed by portfolio managers since the portfolio managers generally manage funds and other accounts having similar investment strategies.
The following table provides information as of November 30, 2023, regarding any other accounts managed by the portfolio managers and portfolio management
team members for the Fund. As noted in the table, the portfolio managers managing the Fund may also manage or be members of management teams for other mutual funds within the Virtus Fund complex or other similar accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Portfolio Manager or
Team Member |
|
Type of Accounts |
|
Total
No. of
Accounts
Managed |
|
|
Total
Assets
(in
millions) |
|
|
No. of
Accounts
where
Advisory
Fee is Based
on
Performance |
|
|
Total Assets
in Accounts
where
Advisory Fee
is Based on
Performance
(in millions) |
|
| Peter J. Wilby |
|
Registered Investment Companies: |
|
|
8 |
|
|
$ |
1,018 |
|
|
|
1 |
|
|
$ |
56 |
|
|
|
Other Pooled Investment Vehicles: |
|
|
19 |
|
|
$ |
1,628 |
|
|
|
1 |
|
|
$ |
186 |
|
|
|
Other Accounts: |
|
|
13 |
|
|
$ |
4,094 |
|
|
|
1 |
|
|
$ |
187 |
|
| James E. Craige |
|
Registered Investment Companies: |
|
|
8 |
|
|
$ |
1,018 |
|
|
|
1 |
|
|
$ |
56 |
|
|
|
Other Pooled Investment Vehicles: |
|
|
19 |
|
|
$ |
1,628 |
|
|
|
1 |
|
|
$ |
186 |
|
|
|
Other Accounts: |
|
|
13 |
|
|
$ |
4,094 |
|
|
|
1 |
|
|
$ |
187 |
|
| Kumaran Damodaran |
|
Registered Investment Companies: |
|
|
7 |
|
|
$ |
961 |
|
|
|
0 |
|
|
|
0 |
|
|
|
Other Pooled Investment Vehicles: |
|
|
19 |
|
|
$ |
1,628 |
|
|
|
1 |
|
|
$ |
186 |
|
|
|
Other Accounts: |
|
|
13 |
|
|
$ |
4,094 |
|
|
|
1 |
|
|
$ |
187 |
|
| Stuart Sclater-Booth |
|
Registered Investment Companies: |
|
|
7 |
|
|
$ |
961 |
|
|
|
0 |
|
|
|
0 |
|
|
|
Other Pooled Investment Vehicles: |
|
|
19 |
|
|
$ |
1,628 |
|
|
|
1 |
|
|
$ |
186 |
|
|
|
Other Accounts: |
|
|
13 |
|
|
$ |
4,094 |
|
|
|
1 |
|
|
$ |
187 |
|
| David A. Oliver |
|
Registered Investment Companies: |
|
|
7 |
|
|
$ |
961 |
|
|
|
0 |
|
|
|
0 |
|
|
|
Other Pooled Investment Vehicles: |
|
|
19 |
|
|
$ |
1,628 |
|
|
|
1 |
|
|
$ |
186 |
|
|
|
Other Accounts: |
|
|
13 |
|
|
$ |
4,094 |
|
|
|
1 |
|
|
$ |
187 |
|
| (a)(3) |
Compensation Structure of Portfolio Manager(s) or Management Team Members |
Virtus, along with certain of its affiliated investment management firms, including Stone Harbor Investment Partners, a division of Virtus
Fixed Income Advisers, LLC (collectively, “Virtus”), believes that the firm’s compensation program is adequate and competitive to attract and retain high-caliber investment professionals. Investment professionals at Virtus receive a
competitive
base salary, an incentive bonus opportunity, and a benefits package. Certain professionals who supervise and manage others also participate in a management incentive program reflecting their
personal contribution and team performance. Certain key individuals also have the opportunity to take advantage of a long-term incentive compensation program, including potential awards of Virtus restricted stock units (“RSUs”) with
multi-year vesting, subject to Virtus board of directors’ approval.
Following is a more detailed description of the compensation structure:
| |
• |
|
Base Salary: Each portfolio manager is paid a fixed based salary, which is designed to be competitive in
light of the individual’s experience and responsibilities. Base salary is determined using compensation survey results of investment industry compensation conducted by an independent third party in evaluating competitive market compensation for
its investment management professionals. |
| |
• |
|
Incentive Bonus: Annual incentive payments are based on targeted compensation levels, adjusted based on
profitability investment performance factors and a subjective assessment of contribution to the team effort. The short-term incentive payment is generally paid in cash, but a portion may be payable in RSUs and mutual fund investments that appreciate
or depreciate in value based on the returns of one or more mutual funds managed by the investment professional. Individual payments are assessed using comparisons of actual investment performance with specific peer group or index measures.
Performance of funds managed is generally measured over one-, three-, and five-year periods and an individual manager’s participation is based on the performance of each fund/account managed.
|
| |
• |
|
Other Benefits: Portfolio managers are also eligible to participate in broad-based plans offered generally
to employees of Virtus and its affiliates, including 401(k), health, and other employee benefit plans. |
While portfolio managers
compensation contains a performance component, this component is adjusted to reward investment personnel for managing within the stated framework and for not taking unnecessary risk. This approach helps ensure that investment management personnel
remain focused on managing and acquiring securities that correspond to a fund’s mandate and risk profile and are discouraged from taking on more risk and unnecessary exposure to chase performance for personal gain. Virtus believes it has
appropriate controls in place to handle any potential conflicts that may result from a substantial portion of portfolio manager compensation being tied to performance.
| (a)(4) |
Disclosure of Securities Ownership |
For the most recently completed fiscal year ended November 30, 2023, beneficial ownership of shares of the Fund by Messrs. Wilby, Craige,
Damodaran, Oliver, Perry, and Sclater-Booth, are as follows. Beneficial ownership was determined in accordance with rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (17 CFR 240.161-1(a)(2)).
|
|
|
|
|
| Name of Portfolio Manager or Team
Member |
|
Dollar ($) Range of Fund Shares
Beneficially Owned |
|
| Peter J. Wilby, CFA |
|
$ |
100,001-$500,000 |
|
| James E. Craige, CFA |
|
$ |
100,001-$500,000 |
|
| Kumaran Damodaran, PhD |
|
$ |
0 |
|
|
|
| David A. Oliver, CFA |
|
$ |
1-$10,000 |
|
| Stuart Sclater-Booth |
|
$ |
0 |
|
| Item 9. |
Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. |
Not applicable.
| Item 10. |
Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those
changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A
(17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
| Item 11. |
Controls and Procedures. |
| |
(a) |
The registrant’s principal executive and principal financial officers, or persons performing similar
functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required
by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting.
| Item 12. |
Disclosure of Securities Lending Activities for Closed-End
Management Investment Companies. |
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
| (Registrant) |
|
Virtus Stone Harbor Emerging Markets Income Fund |
|
|
|
|
|
|
|
|
| By (Signature and Title)* |
|
/s/ George R. Aylward |
|
|
|
|
George R. Aylward, President and Chief Executive Officer |
|
|
(principal executive officer) |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has
been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
| By (Signature and Title)* |
|
/s/ George R. Aylward |
|
|
|
|
George R. Aylward, President and Chief Executive Officer |
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
|
| By (Signature and Title)* |
|
/s/ W. Patrick Bradley |
|
|
|
|
W. Patrick Bradley, Executive Vice President, |
|
|
Chief Financial Officer, and Treasurer |
|
|
(principal financial officer) |
|
|
| * |
Print the name and title of each signing officer under his or her signature. |
EX-99.CODE ETH
CODE OF ETHICS FOR
CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS
Each Fund is committed to conducting business in accordance with applicable laws, rules and regulations and the highest standards of business
ethics, and to full and accurate disclosure — financial and otherwise — in compliance with applicable law. This Code of Ethics applies to each Fund’s Chief Executive Officer, President, Chief Financial Officer and Treasurer (or
persons performing similar functions) (together, “Senior Officers”).
Senior Officers must comply with applicable law and have a
responsibility to conduct themselves in an honest and ethical manner. They have leadership responsibilities that include creating a culture of high ethical standards and a commitment to compliance, maintaining a work environment that encourages the
internal reporting of compliance concerns and promptly addressing compliance concerns.
Senior Officers may be subject to certain
conflicts of interest inherent in the operation of the Funds, because the Senior Officers (in addition to their role as senior officers of the Fund) currently or may in the future serve as officers or employees of a Virtus affiliated investment
adviser1 (the “Adviser”), Virtus Investment Partners, Inc. or other affiliates thereof (collectively, “Virtus”) and as officers or trustees/directors of other registered
investment companies and unregistered investment funds advised by Virtus.
A variety of laws and regulations applicable to, and certain
policies and procedures adopted by, the Fund, the Adviser or Virtus govern certain conduct in connection with many of the conflict of interest situations that arise in connection with the operations of the Fund, including:
| |
• |
|
the Investment Company Act of 1940, as amended, and the rules and regulation promulgated thereunder by the
Securities and Exchange Commission (the “1940 Act”); |
| |
• |
|
the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder by the
Securities and Exchange Commission (the “Advisers Act”); |
| |
• |
|
the Code of Ethics adopted by the Fund pursuant to Rule 17j-1(c) under
the 1940 Act (collectively, the “Fund’s 1940 Act Code of Ethics”); |
| |
• |
|
one or more codes of ethics adopted by the Adviser that have been reviewed and approved by those Members of the
Board that are not “interested persons” of the Fund (the “Independent Members”) within the meaning of the 1940 Act (the “Adviser’s 1940 Act Code of Ethics” and, together with the Fund’s 1940 Act Code of
Ethics, the “1940 Act Codes of Ethics”); |
| |
• |
|
the policies and procedures adopted by the Fund pursuant to Rule 38a-1
under the 1940 Act (collectively, the “Fund Policies”); and |
| |
• |
|
each Adviser’s general policies and procedures (collectively, the “Adviser Policies”).
|
| 1 |
Virtus Investment Advisers, Inc.; Virtus Alternative Investment Advisers, Inc.; Virtus Fund Advisers, LLC;
AlphaSimplex Group, LLC; Ceredex Value Advisors LLC; Duff & Phelps Investment Management Co.; Kayne Anderson Rudnick Investment Management LLC; NFJ Investment Group, LLC; Silvant Capital Managemente LLC; Sustainable Growth Advisers, LP;
Virtus Fixed Income Advisers, LLC; Westchester Capital Management, LLC. (2023.5) |
Tab 2
The provisions of the 1940 Act, the Advisers Act, the 1940 Act Codes of Ethics, the Fund Policies and the Adviser
Policies are referred to herein collectively as the “Additional Conflict Rules”.
This Code of Ethics is different from, and is
intended to supplement, the Additional Conflict Rules. Accordingly, a violation of the Additional Conflict Rules by a Senior Officer is hereby deemed not to be a violation of this Code of Ethics, unless and until the Board of the Fund (the
“Board”) shall determine that any such violation of the Additional Conflict Rules is also a violation of this Code of Ethics.
Senior
Officers Should Act Honestly and Candidly
Each Senior Officer must:
| |
• |
|
act with integrity, including being honest and candid while still maintaining the confidentiality of information
where required by law or the Additional Conflict Rules; |
| |
• |
|
comply with the laws, rules and regulations that govern the conduct of the Fund’s operations and report any
suspected violations thereof in accordance with the section below entitled “Compliance With Code Of Ethics”; and |
| |
• |
|
adhere to a high standard of business ethics. |
Conflicts Of Interest
A conflict of
interest for the purpose of this Code of Ethics occurs when private interests interfere in any way, or even appear to interfere, with the interests of the Fund. Senior Officers are expected to use objective and unbiased standards when making
decisions that affect the Fund, keeping in mind that Senior Officers are subject to certain inherent conflicts of interest because Senior Officers of a Fund also are or may be officers of the Adviser and other funds advised or serviced by Virtus.
Questions regarding the application or interpretation of this Code of Ethics should be raised with the Chief Compliance Officer of the
Fund (the “Chief Compliance Officer”) prior to taking action.
Some conflict of interest situations that should be approved by
the Chief Compliance Officer, if material, include the following:
| |
• |
|
the receipt of any entertainment or non-nominal gift by the Senior
Officer, or a member of his or her family, from any company with which the Fund has current or prospective business dealings (other than the Adviser or Virtus), unless such entertainment or gift is business related, reasonable in cost, appropriate
as to time and place, and not so frequent as to raise any question of impropriety; |
| |
• |
|
any ownership interest in, or any consulting or employment relationship with, any of the Fund’s service
providers, other than the Adviser or Virtus; or |
| |
• |
|
a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for
effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Senior Officer’s employment by the Adviser or Virtus, such as compensation or equity ownership. |
Tab 2
Disclosures
It is the policy of the Funds to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and
regulations in all reports and documents that the Fund files with, or submits to, the Securities and Exchange Commission or a national securities exchange and in all other public communications made by the Fund. Senior Officers are required to
promote compliance with this policy and to abide by the Fund’s standards, policies and procedures designed to promote compliance with this policy.
Each Senior Officer must:
| |
• |
|
familiarize himself or herself with the disclosure requirements applicable to the Fund as well as the business
and financial operations of the Fund; and |
| |
• |
|
not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, including to the
Board, the Fund’s independent auditors, the Fund’s counsel, counsel to the Independent Members, governmental regulators or self-regulatory organizations. |
Compliance With Code Of Ethics
Known or
suspected violations of this Code of Ethics or other laws, regulations, policies or procedures applicable to the Fund, should be reported on a timely basis to the Chief Compliance Officer or may be reported to the Virtus compliance hotline
maintained in accordance with the Fund’s Procedures for Complaints Regarding Accounting, Internal Accounting Controls or Auditing Matters (the “Whistleblower Policy”). In accordance with that Policy, no one will be subject to
retaliation because of a good faith report of a suspected violation.
The Fund will follow these procedures (or, alternatively, the
procedures set forth in the Whistleblower Policy) in investigating and enforcing this Code of Ethics, and in reporting on this Code of Ethics:
| |
• |
|
the Chief Compliance Officer will take all appropriate action to investigate any actual or potential violations
reported to him or her; |
| |
• |
|
violations and potential violations will be reported to the applicable Fund Board after such investigation;
|
| |
• |
|
if the Fund Board determines that a violation has occurred, it will take all appropriate disciplinary or
preventive action; and |
| |
• |
|
appropriate disciplinary or preventive action may include a letter of censure, suspension, dismissal or, in the
event of criminal or other serious violations of law, notification of the Securities and Exchange Commission or other appropriate law enforcement authorities. |
Waivers Of Code Of Ethics
Except as
otherwise provided in this Code of Ethics, the Chief Compliance Officer is responsible for applying this Code of Ethics to specific situations in which questions are presented to the Chief Compliance Officer and has the authority to interpret this
Code of Ethics in any particular situation.
Each Fund Board, or any duly designated committee thereof, is responsible for granting
waivers of this Code of Ethics, as appropriate. Any changes to or waivers of this Code of Ethics will, to the extent required, be disclosed on Form N-CSR, or otherwise, as provided by Securities and Exchange
Commission rules.
Tab 2
Recordkeeping
Records pertaining to the matters covered by this Policy will be maintained and preserved in accordance with applicable laws and regulations
and the Fund’s Books and Records Policy.
All reports and records prepared or maintained pursuant to this Code of Ethics shall be
considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code of Ethics, such matters shall not be disclosed to anyone other than the Independent Members and their counsel, the Fund and
its counsel, the Adviser and/or other Virtus entity and its counsel and any other advisors, consultants or counsel retained by the Members, the Independent Members or any committee of the Board.
Tab 2
Certification Pursuant to Rule 30a-2(a) under the 1940
Act and Section 302 of the Sarbanes-Oxley Act
I, George R. Aylward, certify that:
| 1. |
I have reviewed this report on Form N-CSR of Virtus Stone Harbor
Emerging Markets Income Fund; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report; |
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting. |
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| Date: February 5, 2024 |
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/s/ George R. Aylward |
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George R. Aylward, President and Chief Executive Officer |
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(principal executive officer) |
Certification Pursuant to Rule 30a-2(a) under the 1940
Act and Section 302 of the Sarbanes-Oxley Act
I, W. Patrick Bradley, certify that:
| 1. |
I have reviewed this report on Form N-CSR of Virtus Stone Harbor
Emerging Markets Income Fund; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the
periods presented in this report; |
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule
30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared; |
| |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles; |
| |
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
| |
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and |
| |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting. |
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| Date: February 5, 2024 |
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/s/ W. Patrick Bradley |
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W. Patrick Bradley, Executive Vice President,
Chief Financial Officer, and Treasurer |
|
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(principal financial officer) |
Certification Pursuant to Rule 30a-2(b) under the 1940
Act and Section 906 of the Sarbanes-Oxley Act
I, George R. Aylward, President and Chief Executive Officer of Virtus Stone
Harbor Emerging Markets Income Fund (the “Registrant”), certify that:
| |
1. |
The Form N-CSR of the Registrant containing the financial statements
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant. |
|
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| Date: February 5, 2024 |
|
|
|
|
|
/s/ George R. Aylward |
|
|
|
|
|
|
George R. Aylward, President and Chief Executive Officer |
|
|
|
|
|
|
(principal executive officer) |
I, W. Patrick Bradley, Executive Vice President, Chief Financial Officer, and Treasurer of Virtus Stone Harbor Emerging
Markets Income Fund (the “Registrant”), certify that:
| |
1. |
The Form N-CSR of the Registrant containing the financial statements
(the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Registrant. |
|
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|
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| Date: February 5, 2024 |
|
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|
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/s/ W. Patrick Bradley |
|
|
|
|
|
|
W. Patrick Bradley, Executive Vice President, Chief Financial Officer, and Treasurer |
|
|
|
|
|
|
(principal financial officer) |
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