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 811-22608
Virtus Global Multi-Sector 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
Virtus Investment Partners
One Financial Plaza
Hartford, CT 06103-4506
(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, 2020
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. |
| (b) | Not applicable. |
ANNUAL REPORT
November 30, 2020
Virtus Global Multi-Sector Income Fund
Beginning on January 1, 2021, as permitted by regulations
adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless specifically requested from the Fund or from your financial intermediary, such as a
broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report. If you already elected to receive shareholder
reports electronically, you will not be affected by this change and you need not take any action.
You may elect at any time to receive not only shareholder
reports but also certain other communications from the Fund electronically, or you may elect to receive paper copies of all future shareholder reports free of charge to you. If you own your shares directly with the Fund, you may make such elections
by calling the Fund at 1-866-270-7788 or, with respect to requesting electronic delivery, by visiting www.virtus.com. If you own your shares through a financial intermediary, please contact your financial intermediary to make your request and to
determine whether your election will apply to all funds in which you own shares through that intermediary.
Not FDIC Insured • No Bank Guarantee • May Lose
Value
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The
Board of Trustees (the “Board,” or the “Trustees”) of Virtus Global Multi-Sector Income Fund (the “Fund”) has adopted a Managed Distribution Plan (the “Plan”) which currently provides for the Fund to
make a monthly distribution at the rate of $0.10 per share (the rate was $0.126 per share prior to June 2020). Under the terms of the Plan, the Fund seeks to maintain a consistent distribution level that may be paid in part or in full from net
investment income, realized capital gains, and a return of capital, or a combination thereof.
If the Fund estimates that it has distributed more than its
income and capital gains in a particular period, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of
capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.”
You should not draw any conclusions about the Fund’s
investment performance from the amount of the Fund’s distributions or from the terms of the Fund’s Plan.
The amounts and sources of distributions reported in Section
19(a) notices of the Investment Company Act of 1940 are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment
results during its fiscal year and may be subject to changes based on tax regulations. The Fund will send shareholders a Form 1099-DIV for the calendar year that will tell you how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Plan at any time,
without prior notice to shareholders, if it deems such action to be in the best interest of the Fund and its shareholders.
Information on the Fund is available through the closed-end
fund section on the web at
www.Virtus.com. Section 19(a) notices are posted on the website at:
https://www.virtus.com/products/virtus-global-multi-sector-income-fund.
www.Virtus.com. Section 19(a) notices are posted on the website at:
https://www.virtus.com/products/virtus-global-multi-sector-income-fund.
Table of Contents
Virtus Global Multi-Sector Income Fund
(“Global Multi-Sector Income
Fund”)
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MESSAGE TO SHAREHOLDERS
Dear Virtus
Global Multi-Sector Income Fund Inc. Shareholder:
I am pleased to present this annual report,
which reviews the performance of the Virtus Global Multi-Sector Income Fund Inc. for the 12 months ended November 30, 2020.
This report contains commentary from the
portfolio management team at Newfleet Asset Management about the financial markets and the performance of the Fund during the period. The options overlay strategy, which was managed by Rampart Investment Management, was suspended on February 27 due
to extreme market volatility and ultimately removed from the investment strategy effective June 18. Rampart is no longer a subadviser.
The 12-month period ended November 30,
2020, saw the emergence of a global pandemic, the resulting economic slowdown, a contentious U.S. presidential election, and the launch of several new vaccines to combat COVID-19. During this tumultuous period, the Fund’s net asset value (NAV)
returned 7.70%, including $1.36 in reinvested distributions, and its market price returned 5.28%. For the same period, the Fund’s benchmark, the Bloomberg Barclays Global Aggregate Bond Index, returned 8.38%.
On behalf of the Fund and its investment management team, I
thank you for entrusting your assets to us. Should you have questions about your account or require assistance, please visit the closed-end fund section of Virtus.com, or call our
customer service team at 866-270-7788. We appreciate your business and remain committed to your long-term financial success.
Sincerely,
George R.
Aylward
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
January 2021
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.
1
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
November 30, 2020
About the
Fund:
Virtus Global Multi-Sector Income
Fund’s (NYSE: VGI) (the “Fund”) investment objective is to maximize current income while preserving capital. The Fund seeks to achieve its investment objective by applying an approach, and extensive credit research, to capitalize
on opportunities across undervalued areas of the global bond markets. 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 and invest at higher yields on its investments. As of November 30, 2020, the Fund’s leverage consisted of $52.5 million of borrowings made pursuant to a line of credit, which represented approximately 27% of
the Fund’s total assets.
Manager Comments –
Newfleet Asset Management, LLC (Newfleet)
Newfleet’s multi-sector fixed income
strategies team manages the Fund, leveraging the knowledge and skills of investment professionals with expertise in every sector of the bond market, including evolving, specialized, and out-of-favor sectors. The team employs active sector rotation
and disciplined risk management for portfolio construction, avoiding interest rate bets and remaining duration neutral. The following commentary is provided by the respective portfolio teams at Newfleet and covers the Fund’s fixed income
portfolio for the year ended November 30, 2020.
How did
the markets perform during the Fund’s fiscal year ended November 30, 2020?
The 12-month period included a variety of
market conditions, but the most influential were the emergence of a global pandemic, the associated economic and earnings fallout, and both the fiscal and monetary policy response.
In the final quarter of 2019, investors
maintained their appetite for risk assets. Fixed income markets responded favorably to monetary easing by global central banks, positive developments on the trade front, and signs of stability in economic data. Geopolitical developments including
trade, Middle East tensions, and European politics, as well as central bank headlines, all continued to be significant market movers. During this period, spread sectors outperformed U.S. Treasuries, led by higher-volatility sectors such as corporate
high yield, bank loans, and emerging market debt. In a change from the first three quarters of 2019, lower quality within these sectors outperformed higher quality. Within spread sectors, corporate credit outperformed securitized sectors such as
commercial mortgage-backed securities and asset-backed securities.
In stark contrast, the first quarter of 2020
saw volatility spike to levels not reached since the financial crisis of 2008-09. The quarter will be remembered for the emergence of COVID-19 as the first global pandemic since the H1N1 swine flu of 2009-10. The ultimate human and economic toll are
still unknown, as the event continues to unfold, however, governments and central banks responded in unprecedented fashion to help blunt the effects of the virus. The containment measures implemented through the end of the fiscal year were
unambiguously negative for local, regional, and global economic growth. However, markets rebounded from the lows they reached during the second quarter of 2020.
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 6.
2
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2020
The spread of the coronavirus, its negative
effect on global economic growth, and the fear it created in the market caused fixed income spreads to widen significantly during March. Valuations cheapened meaningfully, reaching levels not seen since 2008-09. Cheaper valuations and an active
approach by both monetary and fiscal authorities proved a powerful combination, setting the stage for improved financial market performance off the March 2020 lows. We sought to take advantage of the market volatility by following the same
investment approach we have implemented for close to three decades.
During the first quarter of 2020, U.S.
Treasuries outperformed spread sectors. The underperformers were led by higher-volatility sectors such as corporate high yield, bank loans, and emerging market debt. In the eight months since, the fixed income markets experienced a significant
rebound, with spread sectors outperforming U.S. Treasuries led by those sectors that experienced the greatest degree of underperformance during the first quarter.
The Federal Reserve (the Fed) lowered its
target interest rate twice during the 12-month period. On two separate occasions in March, in response to the pandemic, the Fed cut by a total of 1.25% to a range of 0–0.25%.
During the 12-month period, the Treasury
yield curve steepened, shifting broadly lower, more so on the front end.
What factors affected the Fund’s performance during its
fiscal year?
For the fiscal year ended
November 30, 2020, the Fund returned 9.80% (gross of 2.40% in fees and expenses), while the Bloomberg Barclays Global Aggregate Bond Index, which serves as the Fund’s benchmark, returned 8.38%.
The Fund’s underweight to U.S.
Treasuries, which outperformed most spread sectors, had a negative impact on performance for the fiscal year ended November 30, 2020. Among fixed income sectors, the Fund’s allocations to high yield bank loans and asset-backed securities
detracted from performance during the period. Issue selection within yankee high quality securities also negatively impacted performance during the 12 months.
The Fund’s allocation to non-agency
residential mortgage-backed securities versus agency mortgage-backed securities positively contributed to performance for the fiscal year. The allocations to the corporate high yield and corporate high quality sectors were also beneficial during the
period.
Options Overlay
The options overlay strategy, which was
managed by Rampart Investment Management, was suspended on February 27, 2020, due to extreme market volatility. Effective, June 18, 2020, the options overlay strategy was removed from the investment strategy of the Fund and Rampart is no longer a
subadviser. For the fiscal year ended November 30, 2020, the options overlay returned (1.24%).
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.
For information
regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 6.
3
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2020
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 6.
4
GLOBAL MULTI-SECTOR INCOME
FUND PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
November 30, 2020
The
following tables present the portfolio holdings within certain
sectors
or countries as a percentage of total investments at November 30, 2020.
5
GLOBAL MULTI-SECTOR INCOME
FUND
KEY INVESTMENT TERMS (Unaudited)
November 30, 2020
Bloomberg Barclays Global Aggregate Bond Index
The Bloomberg Barclays Global Aggregate Bond Index is a
market-weighted index of global government, government-related agencies, corporate and securitized fixed income investments. 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.
Exchange-Traded Fund (“ETF”)
An open-end fund that is traded on a stock exchange. Most ETFs
have a portfolio of stocks or bonds that track a specific market index.
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.
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.
Payment In Kind (“PIK”)
A bond which pays interest in the form of additional bonds, or
preferred stock which pays dividends in the form of additional preferred stock.
Risk Assets
Risk assets are those that tend to demonstrate price
volatility, such as equities, high yield bonds, currencies, and commodities.
S&P 500® Index
The S&P 500® Index is a free-float market capitalization-weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with
dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Yankee Bond
A yankee bond is a bond issued by a foreign
entity, such as a bank or company, but is issued and traded in the United States and denominated in U.S. dollars.
Yield Curve
A line that plots the interest rates, at a set point in time,
of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the
market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
6
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS
November 30, 2020
($ reported in thousands)
See Notes to Financial Statements
7
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
8
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
9
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
10
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
11
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
12
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
13
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to
Financial Statements
14
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
15
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
16
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
17
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to
Financial Statements
18
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
19
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to
Financial Statements
20
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to
Financial Statements
21
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
22
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
See Notes to Financial Statements
23
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
For information regarding the abbreviations, see the Key
Investment Terms starting on page 8.
See Notes to Financial Statements
24
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2020
($ reported in
thousands)
The following table summarizes the market
value of the Fund’s investments as of November 30, 2020, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total
Value at November 30, 2020 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | ||||
| Assets: | |||||||
| Debt Securities: | |||||||
| Asset-Backed Securities | $ 16,789 | $ — | $ 16,789 | $— | |||
| Corporate Bonds and Notes | 96,718 | — | 96,718 | — (1) | |||
| Foreign Government Securities | 31,870 | — | 31,870 | — | |||
| Leveraged Loans | 19,095 | — | 19,095 | — | |||
| Mortgage-Backed Securities | 14,215 | — | 14,215 | — | |||
| Municipal Bonds | 1,719 | — | 1,719 | — | |||
| U.S. Government Securities | 4,207 | — | 4,207 | — | |||
| Equity Securities: | |||||||
| Preferred Stocks | 4,907 | 1,333 | 3,574 | — | |||
| Common Stocks | 93 | 27 | 37 | 29 | |||
| Warrant | 26 | — | — | 26 | |||
| Exchange-Traded Funds | 3,744 | 3,744 | — | — | |||
| Total Investments | $193,383 | $5,104 | $188,224 | $55 |
| (1) | Amount is less than $500. |
Security held by the Fund with an end of
period value of $302 was transferred from Level 3 to Level 2 due to an increase in trading activities during the period.
Securities held by the Fund with an end of
period value of $26 were transferred from Level 2 to Level 3 due to a decrease in trading activities during the period.
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.
Management has determined that the amount of
Level 3 securities compared to total net assets is not material; therefore, the rollforward of Level 3 securities and assumptions are not shown for the period ended November 30, 2020.
See Notes to
Financial Statements
25
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2020
November 30, 2020
(Reported in thousands except shares and per share amounts)
| Assets | |
|
Investment in securities at value (Identified cost
$189,595) |
$ 193,383 |
|
Cash
|
847 |
| Receivables | |
|
Investment securities sold
|
1,130 |
|
Dividends and
interest |
1,781 |
|
Prepaid Trustees’
retainer |
2 |
|
Other assets
|
4 |
|
Total
assets |
197,147 |
| Liabilities | |
|
Borrowings (Note
8) |
52,500 |
| Payables | |
|
Investment securities purchased
|
2,496 |
|
Investment advisory fees
|
150 |
|
Professional fees
|
37 |
|
Administration and accounting
fees |
17 |
|
Interest on borrowings (Note
8) |
10 |
|
Trustee deferred compensation
plan |
4 |
|
Other accrued
expenses |
53 |
|
Total
liabilities |
55,267 |
|
Net
Assets |
$141,880 |
| Net Assets Consist of: | |
|
Capital paid on shares of beneficial interest (no par value, unlimited
authorization) |
$ 161,234 |
|
Total distributable earnings (accumulated
losses) |
(19,354) |
|
Net
Assets |
$141,880 |
| Net Asset Value Per Share(b) | |
|
(Net assets/shares outstanding) Shares outstanding
11,307,508 |
$ 12.55 |
| (b) | Net Asset Value Per Share is calculated using unrounded net assets. |
See Notes to Financial Statements
26
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF OPERATIONS
YEAR ENDED November 30, 2020
YEAR ENDED November 30, 2020
($ reported in thousands)
| Investment Income | |
|
Interest
|
$ 9,403 |
|
Dividends
|
190 |
|
Total investment
income |
9,593 |
| Expenses | |
|
Investment advisory
fees |
1,830 |
|
Administration and accounting
fees |
217 |
|
Printing fees and expenses
|
138 |
|
Trustees’ fees and
expenses |
117 |
|
Professional fees
|
36 |
|
Transfer agent fees and
expenses |
11 |
|
Custodian fees
|
2 |
|
Miscellaneous
expenses |
67 |
|
Total expenses before interest
expense |
2,418 |
|
Interest expense on borrowings (Note
8) |
918 |
|
Total expenses after interest
expense |
3,336 |
|
Net investment income
(loss) |
6,257 |
| Net Realized and Unrealized Gain (Loss) on Investments | |
| Net realized gain (loss) from: | |
|
Investments |
3,899 |
|
Foreign currency
transactions |
(635) |
|
Written
options |
(5,071) |
| Net change in unrealized appreciation (depreciation) on: | |
|
Investments |
4,072 |
|
Foreign currency
transactions |
1 |
|
Written
options |
(85) |
|
Net realized and unrealized gain (loss) on
investments |
2,181 |
|
Net increase (decrease) in net assets resulting from
operations |
$ 8,438 |
See Notes to Financial Statements
27
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in
thousands)
| Year
Ended November 30, 2020 |
Year
Ended November 30, 2019 | ||
| INCREASE
(DECREASE) IN NET ASSETS From Operations |
|||
|
Net investment income
(loss) |
$ 6,257 | $ 6,589 | |
|
Net realized gain
(loss) |
(1,807) | (5,670) | |
|
Net increase from payment by
affiliate |
— | 9 | |
|
Net change in unrealized appreciation
(depreciation) |
3,988 | 14,559 | |
|
Increase (decrease) in net assets resulting from
operations |
8,438 | 15,487 | |
| From Dividends and Distributions to Shareholders | |||
|
Net investment income and net realized
gains |
(5,686) | (5,505) | |
|
Return of
capital |
(9,646) | (11,587) | |
|
Dividends and Distributions to
Shareholders |
(15,332) | (17,092) | |
| From Capital Share Transactions | |||
|
Reinvestment of distributions resulting in the issuance of common stock (3,276 and 0 shares,
respectively) |
44 | — | |
|
Increase (decrease) in net assets from capital
transactions |
44 | — | |
|
Net increase (decrease) in net
assets |
(6,850) | (1,605) | |
| Net Assets | |||
|
Beginning of
period |
148,730 | 150,335 | |
|
End of
period |
$141,880 | $148,730 |
See Notes to Financial Statements
28
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED November 30,
2020
($ reported in thousands)
| Increase (Decrease) in cash | |
| Cash flows provided by (used for) operating activities: | |
|
Net increase (decrease) in net assets resulting from operations
|
$ 8,438 |
| 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
|
157,707 |
|
(Increase) Decrease in investment securities sold receivable
|
(267) |
|
Purchases of long-term investments
|
(143,439) |
|
Increase (Decrease) in investment securities purchased payable
|
(929) |
|
Net (purchases) or sales of short-term
investments |
1,038 |
|
Net (purchases) or sales in purchased options
|
3,423 |
|
Net purchases or (sales) in written options
|
(5,260) |
|
Net change in unrealized (appreciation)/depreciation on investments
|
(3,987) |
|
Net realized (gain)/loss on sales of investments from changes in the foreign exchange
rates |
630 |
|
Net realized (gain)/loss on investments
|
1,172 |
|
Amortization of premium and accretion of discounts on investments
|
(62) |
|
Proceeds from litigation
settlements |
23 |
|
(Increase) Decrease in dividends and interest receivable
|
203 |
|
(Increase) Decrease in prepaid
expenses |
16 |
|
(Increase) Decrease in prepaid Trustees’ retainer
|
13 |
|
Increase (Decrease) in interest payable on borrowings
|
(7) |
|
Increase (Decrease) in affiliated expenses
payable |
(12) |
|
Increase (Decrease) in non-affiliated expenses payable
|
(51) |
|
Cash provided by (used for) operating
activities |
18,649 |
| Cash provided by (used for) financing activities: | |
|
Repayments of borrowings
|
(4,500) |
|
Cash distributions paid to
shareholders |
(15,288) |
|
Cash provided by (used for) financing
activites |
(19,788) |
|
Net increase (decrease) in
cash |
(1,139) |
|
Cash and foreign currency at beginning of
period |
1,986 |
|
Cash and foreign currency at end of
period |
$ 847 |
| Supplemental cash flow information: | |
|
Reinvestment of dividends and
distributions |
$ 44 |
|
Cash paid during the period for interest expense on
borrowings |
925 |
See Notes to Financial Statements
29
GLOBAL MULTI-SECTOR INCOME
FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
| Year Ended November 30, | |||||||||
| 2020 | 2019 | 2018 | 2017 | 2016 | |||||
| PER SHARE DATA: | |||||||||
|
Net asset value, beginning of
period |
$ 13.16 | $ 13.30 | $ 17.06 | $ 16.63 | $ 16.79 | ||||
| Income (loss) from investment operations: | |||||||||
|
Net investment income
(loss)(1) |
0.55 | 0.58 | 0.72 | 0.89 | 0.93 | ||||
|
Net realized and unrealized gain
(loss) |
0.20 | 0.79 | (2.79) | 1.41 | 0.78 | ||||
|
Payment from
affiliate |
— | — (2) | — | — | — | ||||
|
Total from investment
operations |
0.75 | 1.37 | (2.07) | 2.30 | 1.71 | ||||
| Dividends and Distributions to Shareholders: | |||||||||
|
Net investment
income |
(0.51) | (0.49) | (0.59) | (0.78) | (0.89) | ||||
|
Net realized
gains |
— | — | — | (0.78) | — | ||||
|
Return of
capital |
(0.85) | (1.02) | (1.10) | (0.31) | (0.98) | ||||
|
Total dividends and distributions to
shareholders |
(1.36) | (1.51) | (1.69) | (1.87) | (1.87) | ||||
|
Net asset value, end of
period |
$ 12.55 | $ 13.16 | $ 13.30 | $ 17.06 | $ 16.63 | ||||
|
Market value, end of
period |
$ 11.69 | $ 12.54 | $ 11.75 | $ 18.19 | $ 14.96 | ||||
|
Total return, net asset
value(3) |
7.70% | 11.82% | (12.24)% | 14.73% | 12.45% | ||||
|
Total return, market
value(3) |
5.28% | 20.61% | (27.29)% | 35.99% | 19.11% | ||||
| RATIOS/SUPPLEMENTAL DATA: | |||||||||
|
Ratio of total expenses after interest expense to average net
assets(4) |
2.40% | 3.13% | 2.96% | 2.42% | 2.24% | ||||
|
Ratio of net investment income (loss) to average net
assets |
4.51% | 4.39% | 4.86% | 5.21% | 5.65% | ||||
|
Portfolio turnover
rate |
75% | 62% | 58% | 57% | 60% | ||||
|
Net assets, end of period
(000’s) |
$141,880 | $148,730 | $150,335 | $192,483 | $187,175 | ||||
|
Borrowings, end of period
(000’s) |
$ 52,500 | $ 57,000 | $ 59,000 | $ 69,000 | $ 69,000 | ||||
|
Asset coverage, per $1,000 principal amount of
borrowings(5) |
$ 3,702 | $ 3,609 | $ 3,548 | $ 3,790 | $ 3,713 | ||||
| (1) | Calculated using average shares outstanding. |
| (2) | Amount is less than $0.005 per share. |
| (3) | 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. |
| (4) | Ratio of total expenses, before interest expense on the line of credit, was 1.74%, 1.86%, 1.83%, 1.75% and 1.76% for the years ended November 30, 2020, 2019, 2018, 2017 and 2016, respectively |
| (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
30
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS
November 30, 2020
Note 1. Organization
Virtus Global Multi-Sector Income Fund (the
”Fund”) is a closed-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund was formed as a statutory trust under the laws of the State of
Delaware on August 23, 2011. The Fund commenced operations on February 23, 2012.
Note 2. Significant Accounting Policies
The Fund is an investment company that
follows the accounting and reporting guidance of Accounting Standards Codification (“ASC”) Topic 946 applicable to Investment Companies.
The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its financial statements. 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, and 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 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 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. Restricted equity securities and
private placements that are illiquid, or are internally fair valued by the Valuation Committee, 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
31
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
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, 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 securities, including 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, 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
securities that are internally fair valued by the Valuation Committee are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options, that
are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the-counter derivative contracts, which include forward currency contracts and equity-linked instruments, do not require
material subjectivity as pricing inputs are observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
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 is 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 securities are amortized to interest income to the earliest call date using the effective interest method. | |
| 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 and to distribute substantially all of its taxable income and capital gains, |
32
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
| 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. As of November 30, 2020, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from the year 2017 forward (with limited exceptions). | |
| D. | Distributions to Shareholders |
| Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations that may differ from U.S. GAAP. | |
| The Fund has a Managed Distribution Plan which currently provides for the Fund to make a monthly distribution of $0.10 per share. Distributions may represent earnings from net investment income, realized capital gains, or, if necessary, return of capital. Shareholders should not draw any conclusions about the Fund’s investment performance from the terms of the Fund’s Managed Distribution Plan. | |
| 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 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 does not isolate 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. Such fluctuations are included with the net realized and unrealized gain or loss on investments. | |
| F. | When-Issued Purchases and Forward Commitments (Delayed Delivery) |
| The Fund may engage in when-issued or forward commitment transactions. Securities purchased on a when-issued or forward commitment basis are also known as delayed delivery transactions. Delayed delivery transactions involve a commitment by the Fund to purchase or sell a security at a future date (ordinarily up to 90 days later). When-issued or forward commitments enable the Fund to lock in what is believed to be an attractive price or yield on a particular security for a period of time, regardless of future changes in interest rates. The Fund records when-issued and forward commitment securities on the trade date. The Fund maintains collateral for the securities purchased. Securities purchased on a when-issued or forward commitment basis begin earning interest on the settlement date. |
33
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
| G. | 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 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, 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. | |
| H. | 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 each 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. |
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
34
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
accounted for, and how derivative instruments affect the
Fund’s results of operations and financial position. Summarized below are such disclosures and accounting policies of each specific type of derivative instrument used by the Fund.
Options Contracts
An options contract provides the purchaser
with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. During the year ended November 30, 2020, the Fund pursued an option income strategy whereby it purchased and sold
out-of-the-money puts and calls, creating an options spread designed to generate a consistent level of option cash flow which was designed to result in additional yield. The Fund was subject to equity price risk in the normal course of pursuing its
investment objective.
When the Fund
purchased an option, it paid a premium and an amount equal to that premium was recorded as an asset. When the Fund wrote an option, it received a premium and an amount equal to that premium was recorded as a liability. The asset or liability was
adjusted daily to reflect the current market value of the option. Changes in value of the purchased option are included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. Changes in
value of written options are included in “Net change in unrealized appreciation (depreciation) on written options” in the Statement of Operations.
If an option expired unexercised, the Fund
realized a gain or loss to the extent of the premium received or paid. If an option was exercised, the premium received or paid was recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase. The difference between the
premium and the amount received or paid on effecting a closing purchase or sale transaction was also treated as a realized gain or loss. Gain or loss on purchased options is included in “Net realized gain (loss) from investments” in the
Statement of Operations. Gain or loss from written options is presented separately as “Net realized gain (loss) from written options” in the Statement of Operations.
The risk in writing call options was that
the Fund gave up the opportunity for profit if the market price of the referenced security increased and the option was exercised. The risk in writing put options was that the Fund may incur a loss if the market price of the referenced security
decreased and the option was exercised. The risk in buying options was that the Fund paid a premium whether or not the option was exercised. The use of such instruments may have involved certain additional risks as a result of unanticipated
movements in the market. Writers (sellers) of options are normally subject to unlimited risk of loss, as the seller will be obligated to deliver or take delivery of the security at a predetermined price which may, upon exercise of the option, be
significantly different from the then-market value. However, the Fund may have limited its risk of loss when writing an option by purchasing an option similar to the one that was sold, except for the fact it was further
“out-of-the-money.”
The
Fund invested in derivative instruments during the period in the form of writing put/ call options and buying put/call options on the S&P 500®
Index. The primary risk associated with these derivative instruments was equity risk.
35
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
The following is a summary of the
Fund’s options contracts as presented in the Statement of Operations as of November 30, 2020:
|
Net realized gain (loss) from purchased
options |
$ 3,322(1) | |
|
Net realized gain (loss) from written
options |
(5,071) | |
|
Net change in unrealized appreciation (depreciation) on purchased
options |
52 (2) | |
|
Net change in unrealized appreciation (depreciation) on written
options |
(85) | |
|
Total realized and unrealized gain (loss) on purchased and written
options |
$(1,782) | |
| (1) | Amount included in Net realized gain (loss) from investments. |
| (2) | Amount included in Net change in unrealized appreciation (depreciation) on investments. |
For the period December 1, 2019 through June
17, 2020, the average daily premiums paid by the Fund for purchased options were $113 and the average daily premiums received for written options by the Fund were $198. Effective June 18, 2020, the options overlay strategy employed by the Fund was
removed from the Fund’s investment strategy. As a result of this change, Rampart Investment Management Company, LLC (“Rampart”), is no longer a subadviser to the Fund.
Note 4. Investment Advisory Fees and Related Party
Transactions
($ reported in
thousands)
| A. | Adviser |
| Virtus Investment Advisers, Inc. (the “Adviser”), an indirect, wholly-owned subsidiary of Virtus Investment Partners, Inc. (“Virtus”), is the investment adviser of 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 0.95% of the Fund’s average daily Managed Assets, which is calculated daily and paid monthly. “Managed Assets” is defined as the value of the total assets of the Fund minus the sum of all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings or other indebtedness, entered into for the purpose of leverage). | |
| B. | Subadvisers |
| Newfleet Asset Management, LLC (“Newfleet”), an indirect, wholly-owned subsidiary of Virtus, is the subadviser of the fixed income portion of the Fund’s portfolio; and prior to June 18, 2020, Rampart, an indirect, wholly-owned subsidiary of Virtus, was the subadviser of the Fund responsible for managing the Fund’s options overlay strategy. |
36
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
| For the period, these two subadvisers were, in the aggregate, responsible for the day-to-day portfolio management of the Fund for which they were each paid a fee by the Adviser. | |
| C. | Administration Services |
| Virtus Fund Services, LLC (“VFS”), 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 period ended November 30, 2020, the Fund incurred administration fees totaling $193 which are included in the Statement of Operations within the line item “Administration and accounting fees.” | |
| D. | Trustees’ Fees |
| For the period ended November 30, 2020, the Fund incurred Trustees’ fees totaling $110, which are included in the Statement of Operations within the line item “Trustees’ fees and expenses.” | |
| E. | Trustees’ Deferred Compensation Plan |
| The Fund provides a deferred compensation plan for its Trustees who receive compensation from the Fund. Under the deferred compensation plan, Trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund, and then, to the extent permitted by the 1940 Act, in turn, may be invested in the shares of affiliated or unaffiliated mutual funds selected by the participating Trustees. Investments in such instruments are included in “Other assets” in the Statement of Assets and Liabilities at November 30, 2020. |
Note 5. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding
U.S. Government and agency securities, short-term investments, and written options) during the period ended November 30, 2020, were as follows:
| Purchases | Sales | |
| $122,475 | $135,875 |
Purchases and
sales of long-term U.S. Government and agency securities during the period ended November 30, 2020, were as follows:
| Purchases | Sales | |
| $20,964 | $21,832 |
37
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
Note 6. Federal Income Tax Information
($ reported in thousands)
At November 30, 2020, federal tax cost and
aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows:
| Federal
Tax Cost |
Unrealized
Appreciation |
Unrealized
(Depreciation) |
Net
Unrealized Appreciation (Depreciation) | ||||
| $189,653 | $10,754 | $(7,024) | $3,730 |
The Fund has
capital loss carryovers available to offset future realized capital gains, if any, to the extent permitted by the Internal Revenue Code. Net capital losses are carried forward without expiration and generally retain their short-term and/or long-term
tax character, as applicable. The Fund’s capital loss carryovers are as follows:
| Short-Term | Long-Term | |
| $(8,256) | $(14,801) |
Capital losses
realized after October 31 and certain late year losses may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal period ended November 30, 2020, the Fund deferred qualified late-year losses as
follows:
| Late
Year Ordinary Losses Recognized |
Capital
Loss Deferred | |
| $ — 1 | $ 29 |
| 1 | Amount is less than $500. |
The differences between the book and tax
basis 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 periods ended November 30, 2020 and 2019 was as follows:
| 2020 | 2019 | ||
|
Ordinary
Income |
$ 5,686 | $ 5,505 | |
|
Return of
Capital |
9,646 | 11,587 | |
|
Total |
$15,332 | $17,092 |
Note 7. Credit and Market
Risk and Asset Concentration
Local,
regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on
38
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
the
Fund and its investments, including hampering the ability of the Fund’s portfolio manager(s) to invest the Fund’s assets as intended.
The United Kingdom’s Financial Conduct
Authority has announced a phase out of LIBOR by the end of 2021, and it is expected that LIBOR will cease to be published after that time. However, on November 30, 2020, the ICE Benchmark Administration Limited (commonly referred to as
“ICE”) announced its plan to extend the date that most U.S. LIBOR values would cease being computed and announced from December 31, 2021 to June 30, 2023. The Fund may be exposed to financial instruments tied to LIBOR to determine
payment obligations, financing terms, hedging strategies or investment value. The expected discontinuation of LIBOR could have a significant impact on the financial markets and may present a material risk for certain market 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 how such changes would be implemented and the effects such changes would have on the Fund, issuers of instruments in which the Fund invest,
and the financial markets generally.
In countries with limited or developing
markets, investments may present greater risks than in more developed markets, and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market
prices of these investments and the income they generate, as well as the Fund’s ability to repatriate such amounts.
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 subadvisers to accurately predict risk.
The Fund may invest a high percentage of its
assets in specific sectors of the market in the pursuit of its investment objective. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in
such sectors.
The Fund borrows through
its line of credit for the purpose of leveraging its portfolio. 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 has a Credit Agreement (the
“Agreement”), with a commercial bank (the “Bank”) that allows the Fund to borrow cash from the Bank, up to a limit of $72,000, which may be increased to $110,000 under certain circumstances (“Commitment Amount”).
Borrowings under the Agreement are collateralized by investments of the Fund. The Agreement results in the Fund being subject to certain covenants including asset coverage and portfolio composition (among others). If the Fund fails to meet or
maintain certain covenants as required under the Agreement, the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the Agreement, necessitating the sale of securities
39
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
at
potentially inopportune times. Interest is charged at LIBOR plus an additional percentage rate on the amount borrowed. Commitment fees are charged on the undrawn balance. Total commitment fees accrued for the period ended November 30, 2020 were $35
and are included in the “Interest expense on borrowings” line of the Statement of Operations. The Agreement has a term that extends until the
179th day after the date that the lender delivers a “notice of termination” to the Fund. The Bank has the ability to require repayment of
outstanding borrowings under the Agreement upon certain circumstances such as an event of default.
For the period ended November 30, 2020, the
average daily borrowings under the Agreement and the weighted daily average interest rate were $53,828 and 1.61%, respectively. At November 30, 2020, the amount of such outstanding borrowings was as follows:
| Outstanding
Borrowings |
Interest
Rate | |
| $52,500 | 1.00% |
Note 9.
Indemnifications
Under the
Fund’s organizational documents, 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 Transactions
At November 30, 2020, the Fund had one class
of common stock, no par value shares, of which unlimited shares are authorized and 11,307,508 shares are outstanding.
Note 11. Regulatory Matters and Litigation
From time to time, the Fund, the Adviser,
Newfleet, 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.
Note 12. Recent Accounting
Pronouncements
In March 2017, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities
which amends the amortization period for certain callable debt securities held at a premium, shortening such period to the earliest call date. This ASU does not require any accounting change for debt securities held at a discount; the discount
continues to be amortized to
40
GLOBAL MULTI-SECTOR INCOME
FUND
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2020
maturity. This ASU is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2018. Management has implemented the ASU 2017-08 and determined the impact of this guidance to the Fund’s net assets at the end of the period is not material.
In March 2020, the FASB issued 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 LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that
occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any, of applying ASU 2020-04.
Note 13. 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 are the only subsequent events requiring recognition or disclosure in these financial statements.
On December 18, 2020, the Fund paid a
distribution of $0.10 to shareholders of record on December 11, 2020. The distribution had an ex-dividend date of December 10, 2020.
On January 11, 2021, the Fund paid a
distribution of $0.10 to shareholders of record on December 31, 2020. The distribution had an ex-date of January 6, 2021.
41
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Virtus Global
Multi-Sector Income Fund
Opinion on the Financial
Statements
We have audited the accompanying statement of
assets and liabilities, including the schedule of investments, of Virtus Global Multi-Sector Income Fund (the “Fund”) as of November 30, 2020, the related statements of operations and cash flows for the year ended November 30, 2020, the
statements of changes in net assets for each of the two years in the period ended November 30, 2020, including the related notes, and the financial highlights for each of the five years in the period ended November 30, 2020 (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, 2020, the results of its operations and its cash flows for the year
then ended, the changes in its net assets for each of the two years in the period ended November 30, 2020 and the financial highlights for each of the five years in the period ended November 30, 2020 in conformity with accounting principles
generally accepted in the United States of America.
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 audits. 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 audits 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 audits 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 audits 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, 2020 by correspondence with the custodian, transfer agent, agent banks, and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
Philadelphia, Pennsylvania
January 21, 2021
We have served as the auditor of one or more closed-end
investment companies affiliated with Virtus Investment Partners, Inc. or its predecessors since at least 1990. We have not been able to determine the specific year we began serving as auditor.
42
GLOBAL MULTI-SECTOR INCOME
FUND
TAX INFORMATION NOTICE (Unaudited)
November 30, 2020
For the
fiscal year ended November 30, 2020, the Fund makes the following disclosures for federal income tax purposes. Below is listed the percentages, or the maximum amount allowable, of its ordinary income dividends (“QDI”) to qualify for the
lower tax rates applicable to individual shareholders, and the percentage of ordinary income dividends earned by the Fund which qualifies for the dividends received deduction (“DRD”) for corporate shareholders. The Fund designates the
amounts below as long-term capital gains (“LTCG”) dividends taxable at a 20% rate, or lower depending on the shareholder’s income ($ reported in thousands). The actual percentage of QDI, DRD and LTCG for the calendar year will be
designated in year-end tax statements.
| QDI | DRD | LTCG | |||
| —% | —% | $— |
43
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 Automatic Reinvestment and Cash Purchase
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.
44
INVESTMENT OBJECTIVE, PRINCIPAL
STRATEGIES
AND PRINCIPAL RISKS (Unaudited)
Investment Objective: The Fund’s investment objective is to maximize current income while preserving capital.
Principal Strategies:
The Fund seeks to generate high current
income and total return by applying extensive credit research to capitalize on opportunities across undervalued sectors of the global bond markets.
The portfolio seeks global diversification
among 14 sectors in order to potentially increase return and manage risk.
Principal Risks:
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.
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.
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.
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.
45
INVESTMENT OBJECTIVE, PRINCIPAL
STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
Bank Loans:
Investing in loans (including floating rate loans, loan assignments, loan participations and other loan instruments) carries certain risks in addition to the risks typically associated with high-yield/high-risk
fixed income securities. Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and sometimes trade infrequently on the secondary market. In the event a borrower defaults, the Fund’s access to the
collateral may be limited or delayed by bankruptcy or other insolvency laws. There is a risk that the value of the collateral securing the loan may decline after the Fund invests and that the collateral may not be sufficient to cover the amount owed
to the Fund. If the loan is unsecured, there is no specific collateral on which the Fund can foreclose. In addition, if a secured loan is foreclosed, the Fund may bear the costs and liabilities associated with owning and disposing of the collateral,
including the risk that collateral may be difficult to sell.
Transactions in many loans settle on a
delayed basis that may take more than seven days. As a result, sale proceeds related to the sale of loans may not be available until potentially a substantial period of time after the sale of the loans. No active trading market may exist for some
loans, which may impact the ability of the Fund to realize full value in the event of the need to liquidate such assets. Adverse market conditions may impair the liquidity of some actively traded loans. Loans also may be subject to restrictions on
resale, which can delay the sale and adversely impact the sale price. Difficulty in selling a loan can result in a loss. Loans made to finance highly leveraged corporate acquisitions may be especially vulnerable to adverse changes in economic or
market conditions. Certain loans may not be considered “securities,” and purchasers, such as the Fund, therefore may not be entitled to rely on the strong anti-fraud protections of the federal securities laws. With loan participations,
the Fund may not be able to control the exercise of any remedies that the lender would have under the loan and likely would not have any rights against the borrower directly, so that delays and expense may be greater than those that would be
involved if the Fund could enforce its rights directly against the borrower.
Market Volatility: The Fund could lose money over short periods due to short-term market movements and over longer periods during more prolonged market downturns. The value of a security or other instrument may decline due to changes in
general market conditions, economic trends or events that are not specifically related to the issuer of the security or other instrument, or factors that affect a particular issuer or issuers, country, group of countries, region, market, industry,
group of industries, sector or asset class. During a general market downturn, multiple asset classes may be negatively affected. Changes in market conditions and interest rates generally do not have the same impact on all types of securities and
instruments. An outbreak of infectious respiratory illness caused by a novel coronavirus known as COVID-19 was first detected in China in December 2019 and has now been detected globally. This coronavirus has resulted in travel restrictions, closed
international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, and lower consumer demand, as
well as general concern and uncertainty. The impact of COVID-19, and other infectious illness outbreaks that may arise in the future, could adversely affect the economies of many nations or the entire global economy, individual issuers and capital
markets in ways that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19
outbreak
46
INVESTMENT OBJECTIVE, PRINCIPAL
STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
may exacerbate other pre-existing
political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.
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: 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 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.
Asset-Backed and Mortgage-Backed Securities: Mortgage-backed securities represent interests in pools of residential mortgage loans purchased from individual lenders by a federal agency or originated and issued by private lenders. Asset-backed securities represent
interests in pools of underlying assets such as motor vehicle installment sales or installment loan contracts, leases of various types of real and personal property, and receivables from credit card arrangements. These two types of securities share
many of the same risks. The impairment of the value of collateral or other assets underlying a mortgage-backed or asset-backed security, such as that resulting from non-payment of loans, may result in a reduction in the value of such security and
losses to the Fund.
Early
payoffs in the loans underlying such securities may result in the Fund receiving less income than originally anticipated. The variability in prepayments will tend to limit price gains when interest rates drop and exaggerate price declines when
interest rates rise. In the event of high prepayments, the Fund may be required to invest proceeds at lower interest rates, causing the Fund to earn less than if the prepayments had not occurred. Conversely, rising interest rates may cause
prepayments to occur at a slower than expected rate, which may
47
INVESTMENT OBJECTIVE, PRINCIPAL
STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
effectively change a security that was
considered short- or intermediate-term into a long-term security. Long-term securities tend to fluctuate in value more widely in response to changes in interest rates than shorter-term securities.
Closed-End Fund: Because the Fund is a closed-end fund, its shares may trade at a discount or premium from their net asset values, which may affect whether an investor will realize gains or losses. The Fund may also employ leverage,
which may increase volatility.
No
Guarantee: There is no guarantee that the Fund will meet its objective.
Leverage:
When the Fund uses leverage through activities such as borrowing, the Fund has the risk of magnified capital losses that occur when losses affect an asset base, enlarged by borrowings or the creation of liabilities,
that exceeds the net assets of the Fund. The value of the shares of the Fund will be more volatile and sensitive to market movements as a result of its use of leverage. Leverage may also involve the creation of a liability that requires the Fund to
pay interest.
Managed
Distribution Plan: The Board of Trustees has adopted a Managed Distribution Plan (the “Plan”) which currently provides for the Fund to make a monthly distribution at the rate of $0.10 per share (rate was
$0.126 per share prior to June 2020). Under the terms of the Plan, the Fund seeks to maintain a consistent distribution level that may be paid in part or in full from net investment income, realized capital gains, and a return of capital, or a
combination thereof. The Board may amend, suspend or terminate the Plan at any time, without prior notice to shareholders, if it deems such action to be in the best interests of the Fund and its shareholders.
IMPORTANT NOTICE TO
SHAREHOLDERS
The following
disclosure provides only a summary of certain changes which have occurred during the Fund’s most recent fiscal year
On June 18, 2020, the options overlay
strategy employed on the Fund was removed from the investment strategy. As a result of the change, Rampart Investment Management Company, LLC, is no longer a subadviser to the Fund.
48
Automatic Reinvestment and Cash
Purchase Plan (Unaudited)
The Virtus Global Multi-Sector Income Fund
(the “Fund”) allows you to conveniently reinvest distributions monthly in additional Fund shares thereby enabling you to compound your returns from the Fund. By choosing to reinvest, you’ll be able to invest money regularly and
automatically, and watch your investment grow.
It is important to note that an automatic
reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market.
Enrollment in the Reinvestment Plan
It is the policy of the Fund to
automatically reinvest distributions payable to shareholders. A “registered” shareholder automatically becomes a participant in the Fund’s Automatic Reinvestment and Cash Purchase Plan (the “Plan”). The Plan authorizes
the Fund to credit all shares of common stock to participants upon a distribution regardless of whether the shares are trading at a discount or premium to the net asset value. Registered shareholders may terminate their participation and receive
distributions in cash by contacting Computershare Trust Company, N.A. (the “Plan Administrator”). The termination will become effective with the next distribution if the Plan Administrator is notified at least 7 business days prior to
the distribution payment date. Registered shareholders that wish to change their distribution option from cash payment to reinvest may do so by contacting the Fund at 1-866-270-7788. In the case of banks, brokers, or other nominees which hold your
shares for you as the beneficial owner, the Plan Administrator will administer the Plan based on the information provided by the bank, broker or nominee. To the extent that you wish to participate in the Plan, you should contact the broker, bank or
nominee holding your shares to ensure that your account is properly represented. If necessary, you may have your shares taken out of the name of the broker, bank or nominee and register them in your own name.
How shares are purchased through the
Reinvestment Plan
When a distribution
is declared, nonparticipants in the plan will receive cash. Participants in the Plan will receive shares of the Fund valued as described below:
If on the payable date of the distribution,
the market price of the Fund’s common stock is less than the net asset value, the Plan Administrator will buy Fund shares on behalf of the Participant in the open market, on the New York Stock Exchange (NYSE) or elsewhere. The price per share
will be equal to the weighted average price of all shares purchased, including commissions. Commission rates are currently $0.02 per share, although the rate is subject to change and may vary. If, following the commencement of purchases and before
the Plan Administrator has completed its purchases, the trading price equals or exceeds the most recent net asset value of the common shares, the Plan Administrator may cease purchasing shares on the open market and the Fund may issue the remaining
shares at a price equal to the greater of (a) the net asset value on the last day the Plan Administrator purchased shares or (b) 95% of the market price on such day. In the case where the Plan Administrator has terminated open market purchase and
the Fund has issued the remaining shares, the number of shares received by the Participant in respect of the cash distribution will be based on the weighted average of prices paid for shares purchased in the open market and the price at which the
Fund issued the remaining shares. Under certain circumstances, the rules and regulations of the Securities and Exchange Commission may require limitation or temporary suspension of market purchases of shares under the Plan. The Plan Administrator
will not be accountable for its inability to make a purchase during such a period.
49
Automatic Reinvestment and Cash
Purchase Plan (Unaudited)(Continued)
If on the payable date of the distribution,
the market price is equal to or exceeds the net asset value, Participants will be issued new shares by the Fund at the greater of the (a) the net asset value on the payable date or (b) 95% of the market price on such date.
The automatic reinvestment of distributions
will not relieve Participants of any income tax which may be payable on such distributions. A Participant in the Plan will be treated for federal income tax purposes, as having received on a payment date, a distribution in an amount equal to the
cash the participant could have received instead of shares. If you participate in the Plan, you will receive a Form 1099-DIV concerning the Federal tax status of distributions paid during the year.
Charges to Participate in the Plan
As a Participant in the Plan you will not
pay any charge to have your distributions reinvested in additional shares. The Plan Administrator’s fees for handling the reinvestment of distributions will be paid by the Fund. There will be no brokerage commissions for shares issued directly
by the Fund in payment of distributions. However, each Participant will pay a pro rata share of brokerage commissions incurred (currently $0.02 per share, but may vary and is subject to change) with respect to the Plan Administrator’s open
market purchases in connection with the reinvestment of distributions.
Voluntary Cash Purchase Plan
Participants in the Plan have the option of
making additional cash payments for investment in shares of the Fund. Such payments can be made in any amount from $100 per payment to $3,000 per month. The Plan Administrator will use the funds received to purchase Fund shares in the open market on
the 15th of each month or the next business day if the 15th falls on a weekend or holiday (the “Investment Date”). The purchase price per share will be equal to the weighted average price of all shares purchased on the Investment Date,
including commissions. There is no charge to shareholders for Cash Purchases. The plan administrator’s fee will be paid by the Fund. However, each participating shareholder will pay pro rata share of brokerage commissions incurred (currently
$0.02 per share, but may vary and is subject to change) with respect to the Plan Administrator’s open market purchases in connection with all cash investments. Voluntary cash payments should be sent to Computershare, P.O. Box 6006, Carol
Stream, IL 60197-6006.
Participants
have an unconditional right to obtain the return of any cash payment if the Plan Administrator receives written notice at least 5 business days before such payment is to be invested.
Automatic Monthly Investment
Participants in the Plan may purchase
additional shares by means of an Automatic Monthly Investment of not less than $100 nor more than $3,000 per month by electronic funds transfer from a predesignated U.S bank account. If a Participant has already established a Plan account and wishes
to initiate Automatic Monthly Investments, the Participant must complete and sign an automatic monthly investment form and return it to the Plan Administrator together with a voided check or deposit slip for the account from which funds are to be
withdrawn. Automatic monthly investment forms may be obtained from the Fund by calling 1-866-270-7788.
50
Automatic Reinvestment and Cash
Purchase Plan (Unaudited)(Continued)
Termination of Shares
Shareholders wishing to liquidate shares
held with the Plan Administrator must do so in writing or by calling 1-866-270-7788. The Plan Administrator does not charge a fee for liquidating your shares; however, a brokerage commission of $0.02 will be charged. This charge may vary and is
subject to change.
Once terminated,
you may re-enroll in the Plan (provided you still have shares registered in your name) by contacting the Fund at 1-866-270-7788.
Additional Information
For more information regarding the Automatic
Reinvestment and Cash Purchase Plan, please contact the Fund at 1-866-270-7788 or visit Virtus.com.
The Fund reserves the right to amend or
terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 90 days before the record date for such distribution. The
Plan also may be amended or terminated by the Plan Administrator with at least 90 days’ written notice to participants in the Plan.
51
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES OF VIRTUS GLOBAL MULTI SECTOR INCOME FUND (VGI) (Unaudited)
The Board of Trustees (the
“Board”) of Virtus Global Multi Sector 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 Investment Advisers, Inc. (“VIA”) and of the subadvisory agreement (the “Subadvisory Agreement” and, together with the Advisory Agreement, the “Agreements”) with Newfleet Asset Management, LLC (the
“Subadviser”). At meetings held on November 3 and November 17, 2020, in a virtual meeting format in light of public health concerns regarding the spread of COVID-19 (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 VIA 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 VIA 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 VIA and 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 VIA 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 VIA and the Subadviser to detailed requests submitted by independent legal counsel to the
Independent Trustees on their behalf. The Trustees also previously had received presentations by VIA’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 VIA and the Subadviser; and
investment process, investment strategies, personnel, compliance procedures, and overall performance of VIA and the Subadviser.
In considering the Agreement with VIA, the
Board considered VIA’s process for supervising and managing the Subadviser, including: (a) VIA’s ability to select and monitor the Subadviser; (b) VIA’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) VIA’s ability and willingness to identify instances in which the Subadviser should be replaced and to
carry out the required changes. The Trustees also considered: (a) the experience and capability of VIA’s management and other personnel; (b) the financial condition of
52
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES OF VIRTUS GLOBAL MULTI SECTOR INCOME FUND (VGI) (Unaudited) (Continued)
VIA, and whether it had the financial wherewithal to provide a
high level and quality of services to the Fund; (c) the quality of VIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services provided by VIA and its
affiliates to the Fund; (e) VIA’s supervision of the Fund’s other service providers; and (f) VIA’s risk management processes. It was noted that an affiliate of VIA serves as administrator to the Fund. The Board also took into
account its knowledge of VIA’s management and the quality of the performance of VIA’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, including the Subadviser’s Form ADV, 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 VIA’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. The Board noted the Subadviser’s regulatory history, including the fact that the Subadviser was not currently involved in any regulatory actions, investigations or material litigation.
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 VIA’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 considered that, while the
Fund’s performance for the 3- and 5-year periods ended June 30, 2020, was below the median of the Performance Universe for the same periods, the Fund’s performance for the year-to-date and 1-year periods ended June 30, 2020, was above
the median of the Performance Universe for the same period. The Board also considered that the Fund underperformed its benchmark for the year-to-date, 1-, 3- and 5-year periods ended
53
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES OF VIRTUS GLOBAL MULTI SECTOR INCOME FUND (VGI) (Unaudited) (Continued)
June 30, 2020. The Trustees discussed the Fund’s
underperformance and the reasons therefor among themselves and 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 levels 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”) and ranked according to quintile (the first quintile being lowest and, therefore, best in these expense component rankings, and fifth being highest and, therefore, worst in these expense
component rankings). 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 included advisory fees. The Board also noted that the subadvisory fees were
paid by VIA 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 VIA after payment of the subadvisory fees. The Trustees also considered the fee rates payable by accounts and funds 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 were in the fourth quintile of the Expense Universe, and that the Fund’s net total expenses were in the second quintile of the Expense Universe.
Profitability
The Board also considered
certain information relating to profitability that had been provided by VIA. In this regard, the Board considered information regarding the overall profitability of VIA for its management of the Fund, as well as its profits and those of its
affiliates for managing and providing other services to the Fund, such as administrative services provided to the Fund by a VIA affiliate. In addition to the fees paid to VIA and its affiliates, including the Subadviser, the Board considered other
benefits derived by VIA 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 VIA and its affiliates from the Fund was within a reasonable range in light of the quality of the services rendered to
the Fund by VIA 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 fees payable under the Subadvisory Agreement are paid by VIA out of the fees that VIA receives under the Advisory Agreement, and not by the Fund. In considering the
fees payable by VIA to the Subadviser, the Board noted that, because the Subadviser is an affiliate of VIA, its profitability might be directly or indirectly shared by VIA and, therefore, the Board considered the profitability of VIA and the
Subadviser together. For each of
54
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS BY THE BOARD OF TRUSTEES OF VIRTUS GLOBAL MULTI SECTOR INCOME FUND (VGI) (Unaudited) (Continued)
the above reasons, the Board concluded that the profitability
to the Subadviser and its affiliates from their relationships with the Fund was not a material factor in approval of the Subadvisory Agreement.
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 VIA, the Subadviser and their respective affiliates as a result of their relationships with the Fund. The Board noted that an affiliate of VIA
provides administrative services to the Fund. The Board noted management’s discussion of the fact that, while the Subadviser is an affiliate of VIA, there are no other direct benefits received by the Subadviser in providing investment advisory
services to the Fund, other than the fees earned under the Subadvisory Agreement.
The Trustees concluded that potential
“fallout” benefits that VIA 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.
55
FUND MANAGEMENT TABLES
(Unaudited)
Information pertaining to the Trustees and
Officers of the Company 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 Global Multi-Sector 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 and Other Trusteeships Held by Trustee |
| Burke,
Donald C. YOB: 1960 Served Since: 2020, Class ll 72 Portfolios |
Retired. Director (since 2020), Duff & Phelps Select MLP and Midstream Energy Fund Inc. and Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (54 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Alternative Solutions Trust (3 portfolios); Director (since 2014) closed-end funds managed by Duff & Phelps Investment Management Co. (4 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). |
| Harris,
Sidney E. YOB: 1949 Served Since: 2020, Class ll 68 Portfolios |
Professor and Dean Emeritus (since April 2015), Professor (1997 to 2014), Dean (1997 to 2004), J. Mack Robinson College of Business, Georgia State University. Director (since 2020), Duff & Phelps Select MLP and Midstream Energy Fund Inc. and 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 (54 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (3 portfolios); Trustee (since 2013), KIPP Metro Atlanta; Trustee (since 1999) Total System Services, Inc.; Trustee (2004 to 2017), RidgeWorth Funds; Trustee (since 2012), International University of the Grand Bassam Foundation; and Trustee (2011 to 2015), Genspring Family Offices, LLC. |
| Mallin,
John R. YOB: 1950 Served Since: 2020, Class II 68 Portfolios |
Partner/Attorney (since 2003), McCarter & English LLP (law firm), Real Property Practice Group; and Member (since 2014), Counselors of Real Estate. Director (since 2020), Duff & Phelps Select MLP and Midstream Energy Fund Inc. and Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (54 portfolios) and Virtus Alternative Solutions Trust (3 portfolios); Director (since 2013), Horizons, Inc. (non-profit); and Trustee (since 1999), Virtus Variable Insurance Trust (8 portfolios). |
| McDaniel,
Connie D. YOB: 1958 Served Since: 2020, Class III 68 Portfolios |
Retired (since 2013); and 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. Director (since 2020), Duff & Phelps Select MLP and Midstream Energy Fund Inc. and Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Director (since 2019), Global Payments Inc.; Trustee (since 2017), Virtus Mutual Fund Family (54 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (3 portfolios); Trustee (2014 to 2019), Total System Services, Inc.; Member (since 2011) and Chair (2014 to 2016), Georgia State University, Robinson College of Business Board of Advisors; and Trustee (2005 to 2017), RidgeWorth Funds. |
56
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 and Other Trusteeships Held by Trustee |
| McLoughlin,
Philip R. YOB: 1946 Served Since: 2011, Class lll Chairman 72 Portfolios |
Retired. 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 (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (3 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. (4 funds); Director (since 1991) and Chairman (since 2010), Lazard World Trust Fund (closed-end investment firm in Luxembourg); and Trustee (since 1989) and Chairman (since 2002), Virtus Mutual Fund Family (54 portfolios). |
| McNamara,
Geraldine M. YOB: 1951 Served Since: 2020, Class l 72 Portfolios |
Retired. Director (since 2020), Duff & Phelps Select MLP and Midstream Energy Fund Inc. and Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Alternative Solutions Trust (3 portfolios); Trustee (since 2015), Virtus Variable Insurance Trust (8 portfolios); Director (since 2003), closed-end funds managed by Duff & Phelps Investment Management Co. (4 funds); and Trustee (since 2001), Virtus Mutual Fund Family (54 portfolios). |
| Oates,
James M. YOB: 1946 Served Since: 2013, Class ll 68 Portfolios |
Managing Director (since 1994), Wydown Group (consulting firm). Director (since 2016), Virtus Total Return Fund Inc.; Director (2016 to 2019), the former Virtus Total Return Fund Inc.; Trustee (since 2016) Virtus Variable Insurance Trust (8 portfolios); Director (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2013), Virtus Alternative Solutions Trust (3 portfolios); Trustee (since 2013), Virtus Global Multi-Sector Income Fund; Trustee (since 2005) and Chairman (2005 to 2017), John Hancock Fund Complex (227 portfolios); Director (2002 to 2014), New Hampshire Trust Company; Chairman (2000 to 2016), Emerson Investment Management, Inc.; Non-Executive Chairman (2000 to 2014), Hudson Castle Group, Inc. (formerly IBEX Capital Markets, Inc.) (financial services); Chairman and Director (1999 to 2014), Connecticut River Bank; Director (since 1996), Stifel Financial; and Trustee (since 1987), Virtus Mutual Fund Family (54 portfolios). |
| Rogers,
James B., Jr. YOB: 1942 Served Since: 2016, Class I 3 Portfolios |
Director (since 1988), Virtus Total Return Fund Inc.; Director (1986 to 2019), the former Virtus Total Return Fund Inc.; Trustee/Director (since 2016), Virtus Global Multi-Sector Income Fund and Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2018), Ananti Inc., Sirius International Insurance Group, Ltd., and Quantum Digital Asset Management Pte. Ltd; Director (2018 to 2019), Ocean Capital Advisors LLC; Director (since 2017), JSC AgroGard-Finance; Director (2016 to 2018), Crusader Resources Limited; Director (since 2014), Sinofortune Financial Holdings Limited; Director (since 2014), Phos Agro; Director (since 2012), Spanish Mountain Gold Limited; Director (since 2012), GEO Energy Resources Limited; Chairman (since 2007), Beeland Enterprises Inc.; Director (since 2007), Beeland Holdings Pte Ltd.; and Chairman (since 1980), Beeland Interests (Media and Investments). |
57
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 and Other Trusteeships Held by Trustee |
| Walton,
R. Keith YOB: 1964 Served Since: 2016, Class I 68 Portfolios |
Managing Director (since 2020), Lafayette Square Holding Company LLC; Venture and Operating Partner (since 2020), Plexo Capital, LLC; Venture Partner (since 2019) and Senior Adviser (2018 to 2019), Plexo, LLC; Senior Adviser (2018 to 2019), Vatic Labs, LLC; Executive Vice President, Strategy (2017 to 2019), Zero Mass Water, LLC; Vice President, Strategy (2013 to 2017), Arizona State University; Partner (since 2006), Global Infrastructure Partners; Trustee (since 2020) Virtus Alternative Solutions Trust (3 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (54 portfolios); Director (since 2017), certain funds advised by Bessemer Investment Management LLC; Director (since 2016), 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. |
| Zino,
Brian T. YOB: 1952 Served Since: 2016, Class l 68 Portfolios |
Retired. Trustee (since 2020) Virtus Alternative Solutions Trust (3 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (54 portfolios); Trustee (since 2016), Virtus Global Multi-Sector Income Fund; Director (since 2016), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2014), Virtus Total Return Fund Inc.; Director (2014 to 2019), the former Virtus Total Return Fund Inc.; Trustee, Bentley University (since 2011); Director (1986 to 2008) and President (1994 to 2008), 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). |
58
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 |
|
| Aylward,
George R.* Trustee and President YOB: 1964 Served Since: 2014, Class lll 71 Portfolios |
Director, President and Chief Executive Officer (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; various senior officer positions with Virtus affiliates (since 2005). Chairman and Trustee (since 2015), Virtus ETF Trust II (3 portfolios); Director, President and Chief Executive Officer (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and President (since 2013), Virtus Alternative Solutions Trust (3 portfolios); Director (since 2013), Virtus Global Funds, PLC (4 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 (54 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.
Advisory Board
Member
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen |
Principal Occupation(s) During Past 5 Years | Other
Trusteeships Held by Trustee During Past 5 Years |
| Moyer,
William R. YOB: 1944 Served Since: 2020 68 Portfolios |
Private investor (since 2004); Financial and Operations Principal (2006 to 2017), Newcastle Distributors LLC (broker dealer); Advisory Member (since 2020), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (54 portfolios); Director (2016 to 2019) and Advisory Member (since 2020), Virtus Total Return Fund Inc.; Director (2016 to 2019), the former Virtus Total Return Fund Inc.; Director (2014 to 2019) and Advisory Member, Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (2011 to 2019) and Advisory Member, Virtus Global Multi-Sector Income Fund; Trustee (2013 to 2016) and Advisory Member (since 2020), Virtus Alternative Solutions Trust (3 portfolios). |
59
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 2017) and Vice President (2016 to 2017). | Senior Vice President, Product Development (since 2017), Vice President, Product Development (2008 to 2016), and various officer positions (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Senior Vice President (since 2017) and Vice President (2008 to 2016), Virtus Mutual Fund Family; Senior Vice President (since 2017) and Vice President (2010 to 2016), Virtus Variable Insurance Trust; Senior Vice President (since 2017) and Vice President (2013 to 2016), Virtus Alternative Solutions Trust; Senior Vice President (since 2017) and Vice President (2016 to 2017), Duff & Phelps Select MLP and Midstream Energy Fund Inc., Virtus Total Return Fund Inc. and Virtus Global Multi-Sector Income Fund; and Senior Vice President (2017 to 2019) and Vice President (2016 to 2017), the former Virtus Total Return Fund Inc. |
| Bradley,
W. Patrick YOB: 1972 |
Executive Vice President (since 2016); Senior Vice President (2013 to 2016); Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2011). | Executive Vice President, Fund Services (since 2016), Senior Vice President, Fund Services (2010 to 2016), and various officer positons (since 2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Director (since 2019), Virtus Global Funds ICAV; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2004), Virtus Variable Insurance Trust; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2006), Virtus Mutual Fund Family; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2012 to 2013) and Chief Financial Officer and Treasurer (since 2010), Virtus Total Return Fund Inc.; Executive Vice President (2016 to 2019), Senior Vice President (2013 to 2016), Vice President (2012 to 2013), Chief Financial Officer and Treasurer (since 2010), the former Virtus Total Return Fund Inc.; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), Vice President (2011 to 2013), Chief Financial Officer and Treasurer (since 2011), Virtus Global Multi-Sector Income Fund; Executive Vice President (since 2016), Senior Vice President (2014 to 2016), Chief Financial Officer and Treasurer (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Executive Vice President (since 2016), Senior Vice President (2013 to 2016), and Chief Financial Officer and Treasurer (since 2013), Virtus Alternative Solutions Trust; Director (since 2013), Virtus Global Funds, PLC; and Vice President and Assistant Treasurer (since 2011), Duff & Phelps Utility and Infrastructure Fund Inc. |
60
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 |
| Engberg,
Nancy J. YOB: 1956 |
Senior Vice President (since 2017), Vice President (2011 to 2017) and Chief Compliance Officer (since 2011). | Senior Vice President (since 2017), Vice President (2008 to 2017) and Chief Compliance Officer (2008 to 2011 and since 2016), and various officer positions (since 2003), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Senior Vice President (since 2017), Vice President (2011 to 2017) and Chief Compliance Officer (since 2011), Virtus Mutual Fund Family; Senior Vice President (since 2017), Vice President (2010 to 2017) and Chief Compliance Officer (since 2011), Virtus Variable Insurance Trust; Senior Vice President (since 2017), Vice President (2011 to 2017) and Chief Compliance Officer (since 2011), Virtus Global Multi-Sector Income Fund; Senior Vice President (since 2017), Vice President (2012 to 2017) and Chief Compliance Officer (since 2012), Virtus Total Return Fund Inc.; Senior Vice President (2017 to 2019), Vice President (2012 to 2017) and Chief Compliance Officer (since 2012), the former Virtus Total Return Fund Inc.; Senior Vice President (since 2017), Vice President (2013 to 2016) and Chief Compliance Officer (since 2013), Virtus Alternative Solutions Trust; Senior Vice President (since 2017), Vice President (2014 to 2017) and Chief Compliance Officer (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Chief Compliance Officer (since 2015), ETFis Series Trust I; and Chief Compliance Officer (since 2015), Virtus ETF Trust II. |
| Fromm,
Jennifer YOB: 1973 |
Vice President, Chief Legal Officer, Counsel and Secretary (since 2020). | Vice President (since 2016) and Senior Counsel (since 2007), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Vice President and Secretary (since 2020), DNP Select Income Fund Inc., Duff & Phelps Utility and Infrastructure Fund Inc., and DTF Tax-Free Income Inc.; Assistant Secretary (since 2020), Duff & Phelps Utility and Corporate Bond Trust Inc.; Vice President, Chief Legal Officer and Secretary (since 2019), Duff & Phelps Select MLP and Midstream Energy Fund Inc., Virtus Total Return Fund Inc. and Virtus Global Multi-Sector Income Fund; Vice President (since 2017) and Assistant Secretary (since 2008), Virtus Mutual Funds Family; Vice President, Chief Legal Officer, and Secretary (since 2013), Virtus Variable Insurance Trust; and Vice President, Chief Legal Officer, and Secretary (since 2013), Virtus Alternative Solutions Trust. |
61
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 |
| Short,
Julia R. YOB: 1972 |
Senior
Vice President (since 2018). |
Senior Vice President, Product Development (since 2017), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Senior Vice President (since 2018), Duff & Phelps Select MLP and Midstream Energy Fund Inc., Virtus Global Multi-Sector Income Fund and Virtus Total Return Fund Inc.; Senior Vice President (2018 to 2019), the former Virtus Total Return Fund Inc.; Senior Vice President (since 2017), Virtus Mutual Fund Family; President and Chief Executive Officer, RidgeWorth Funds (2007 to 2017); and Managing Director, Product Manager, RidgeWorth Investments (2004 to 2017). |
| Waltman,
Francis G. YOB: 1962 |
Executive Vice President (since 2013); Senior Vice President (2011 to 2013). | Executive Vice President, Product Management (since 2009), and various senior officer positions (since 2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Director (since 2019), Virtus Global Funds ICAV; Executive Vice President (since 2017), Virtus Total Return Fund Inc.; Executive Vice President (2017 to 2019), the former Virtus Total Return Fund Inc.; Executive Vice President (since 2014), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Executive Vice President (since 2013), Senior Vice President (2008 to 2013), Virtus Mutual Fund Family; Executive Vice President (since 2013), Senior Vice President (2010 to 2013), Virtus Variable Insurance Trust; Executive Vice President (since 2013), Senior Vice President (2011 to 2013), Virtus Global Multi-Sector Income Fund; Director (since 2013), Virtus Global Funds PLC; Executive Vice President (since 2013), Virtus Alternative Solutions Trust. |
62
GLOBAL MULTI-SECTOR INCOME
FUND
101 Munson Street
Greenfield, MA 01301-9668
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.
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.
| Item 2. | Code of Ethics. |
| (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, and that relates to any element of the code of ethics description. |
| (d) | The registrant has not granted any waivers, 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 this item’s instructions. |
| 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 had determined that Brian T. Zino possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert” and that he is an “independent” Trustee, as defined in paragraph (a)(2) of Item 3. On February 1, 2021, 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 $25,155 for 2020 and $26,195 for 2019. |
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 $3,067 for 2020 and $2,333 for 2019. Such audit-related fees include out of pocket expenses. |
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 $3,400 for 2020 and $3,200 for 2019. |
“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 for the Fund, 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 2020 and $0 for 2019. |
| (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 Global Multi-Sector 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 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 $6,467 for 2020 and $5,533 for 2019. |
| (h) | The registrant’s audit committee of the board of directors 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. From December 1, 2019, until January 13, 2020, the members of the audit committee were: William Moyer, Philip R. McLoughlin, Brian T. Zino, James B. Rogers, James M. Oates and R. Keith Walton. On January 14, 2020, the members of the audit committee changed to: Brian T. Zino, Donald C. Burke, John R. Mallin, and Connie D. McDaniel. William R. Moyer also serves as an advisory member of the audit committee, effective January 14, 2020; and Deborah A. DeCotis serves as an advisory member of the audit committee, effective February 1, 2021. |
| (b) | Not applicable. |
| Item 6. | Investments. |
| (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 of this form. |
| (b) | Not applicable. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
The Fund has adopted a Policy Regarding Proxy Voting 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 has committed 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 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.
The Policy stipulates that the Fund’s investment adviser will vote proxies, or delegate such responsibility to a subadviser. The applicable voting party will vote proxies in accordance with this Policy, or its own policies and procedures, which in no event will conflict with the Fund’s Policy. The adviser or subadviser may engage a qualified, independent organization to vote proxies on its behalf (a “delegate”). Matters that may affect substantially the rights and privileges of the holders of securities to be voted will be analyzed and voted on a case-by-case basis taking into consideration such relevant factors as enumerated in the Policy. The views of management of a portfolio company will be considered.
The Policy specifies certain factors that will be considered when analyzing and voting proxies on certain issues, including, but not limited to:
| • | Corporate Governance Matters—tax and economic benefits of changes in the state of incorporation; dilution or improved accountability associated with anti-takeover provisions such as staggered boards, poison pills and supermajority provisions. |
| • | 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 implementation of the proposal is likely to enhance or protect shareholder value; whether the issue(s) presented in the proposal are more appropriately or effectively dealt with through legislation or government regulation; if the company has already responded in an appropriate and sufficient manner to the issue(s) raised in the proposal; whether the proposal’s request is unduly burdensome or overly prescriptive; whether any increase in disclosure or transparency requested would have a deleterious impact; and whether the company’s current approach to the issue(s) presented are comparative to current industry practice. |
The Fund and its delegates seek to avoid actual or perceived conflicts of interest of Fund shareholders, on the one hand, and those of the adviser, subadviser, delegate, or any affiliated person of the Fund, on the other hand.
Depending on the type and materiality, any conflicts of interest will be handled by (i) relying on the recommendations of an established, independent third party proxy voting vendor; (ii) voting pursuant to the recommendation of the delegate; (iii) abstaining; or (iv) where two or more delegates provide conflicting requests, voting shares in proportion to the assets under management of each delegate. The Policy requires the adviser/subadviser or delegate to notify the President of the Fund of any actual or potential conflict of interest. The adviser/subadviser or delegate may not waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board or the President of the Fund.
The Policy further imposes certain record-keeping and reporting requirements on the adviser/subadviser or delegate.
During the period of the report, any proxies for the Fund were handled by the Fund’s subadvisers, Newfleet Asset Management, LLC (“Newfleet”) and Rampart Investment Management Company, LLC (“Rampart”). Following are summaries of their proxy voting policies. (Rampart ceased serving as a subadviser to the Fund during the period and was subsequently wound down, so the proxy voting policy shown below for Rampart was in effect while Rampart subadvised the Fund but it is no longer in effect.)
Newfleet
Although the nature of Newfleet’s portfolios is such that ballots are rarely required, Newfleet has adopted pre-determined proxy voting guidelines (the “Guidelines”) to make every effort to ensure the manner in which shares are voted is in the best interest of its clients and the value of the investment. Under the Guidelines, Newfleet sometimes delegates to a non-affiliated third party vendor the responsibility to review proxy proposals and make voting recommendations on behalf of Newfleet. Newfleet may also vote a proxy contrary to the Guidelines if it determines that such action in the best interest of its clients including the Fund.
A complete copy of Newfleet’s current Proxy Voting Policies & Procedures is available by sending a written request to Newfleet Asset Management, LLC, Attn: Compliance Department, One Financial Plaza, Hartford, CT 06103. Email requests may be sent to: james.sena@virtus.com.
Rampart
Rampart has adopted proxy voting policies, procedures and guidelines (“Guidelines”) in an effort to ensure proxies are voted in the best interests of its clients and the value of the investment, and to address any real or perceived conflicts of interest in proxy voting. Proxies of the Fund will be voted subject to the Fund’s Policy and, to the extent applicable, in accordance with any resolutions or other instructions approved by authorized persons of the Fund. Any Rampart representative identifying a conflict of interest in voting a proxy is required to immediately report the conflict of interest to Rampart’s CCO who will determine a course of action.
Rampart’s Guidelines allow Rampart to utilize a qualified, non-affiliated third party vendor to review proxies and make voting recommendations on behalf of Rampart’s clients consistent with the Guidelines.
Rampart may choose not to vote proxies in certain situations or for certain accounts, such as but not limited to the following:
| • | When Rampart deems the cost of voting would exceed any anticipated benefit to the respective client(s); |
| • | When a proxy is received for a security Rampart no longer manages (i.e., Rampart has previously sold the entire position); and/or |
| • | When the exercise of voting rights could restrict the ability of an account’s portfolio manager to freely trade the security. |
A complete copy of Rampart’s Proxy Voting Guidelines is available by sending a written request to Rampart Investment Management Company, LLC, Attn: Chief Compliance Officer, One Financial Plaza, Hartford, CT 06103. Email requests may be sent to: james.sena@virtus.com.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
As of the date of filing this report, the Fund’s sub-adviser is Newfleet Asset Management, LLC.
| (a)(1) | Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members |
David L. Albrycht, CFA. David Albrycht is president and chief investment officer of Newfleet. Prior to joining Newfleet in 2011, Mr. Albrycht was executive managing director and senior portfolio manager with Goodwin Capital Advisers, a former affiliate of Virtus Investment Partners (“Virtus”), the parent of Newfleet. He joined the Goodwin multi-sector fixed income team in 1985 as a credit analyst and has managed fixed income portfolios since 1991. He holds the Chartered Financial Analyst designation and has been working in the investment industry since 1985.
Mr. Albrycht has been a portfolio manager of the Fund since its inception, Virtus Newfleet Multi-Sector Short Term Bond Fund since 1993, Virtus Newfleet Multi-Sector Intermediate Bond Fund since 1994, Virtus Newfleet Senior Floating Rate Fund since 2008, and co-manager of Virtus Tactical Allocation Fund and Virtus Newfleet High Yield Fund since 2011, Virtus Newfleet Core Plus Bond Fund and Virtus Newfleet Low Duration Income Fund since 2012. He also co-manages two variable investment options and is co-manager of another closed-end fund, Virtus Global Multi-Sector Income Fund (NYSE: VGI). He also is a manager of three exchange-traded funds, AdvisorShares Newfleet Multi-Sector Income ETF (NYSE: MINC), Virtus Newfleet Multi-Sector Bond ETF (NFLT), and Virtus Newfleet Dynamic Credit ETF (BLHY), and two offshore funds, the Virtus GF Multi-Sector Short Duration Bond Fund and Virtus GF Multi-Sector Income Fund. He is also responsible for the structuring and management of Newfleet’s CLO platform.
Mr. Albrycht earned a B.A., cum laude, from Central Connecticut State University and an M.B.A., with honors, from the University of Connecticut. He is a Chartered Financial Analyst® (CFA®) charterholder and has been working in the investment industry since 1985.
Benjamin Caron, CFA. Ben Caron is a senior managing director and portfolio manager at Newfleet. In addition to the Fund, Mr. Caron is co-portfolio manager of the Virtus Newfleet Low Duration Core Plus Bond Fund, and two actively managed ETFs: AdvisorShares Newfleet Multi-Sector Income ETF (NYSE: MINC), and Virtus Newfleet Multi-Sector Bond ETF (NYSE: NFLT). He also assists in the management of Virtus Newfleet Multi-Sector Short Term Bond Fund, Virtus Newfleet Multi-Sector Intermediate Bond Fund, Virtus Tactical Allocation Fund, two variable insurance investment options and the closed-end Virtus Total Return Fund Inc. (NYSE: ZTR).
Prior to joining Newfleet in 2011, Mr. Caron was on the fixed income team at Goodwin Capital Advisers, a former Virtus investment management subsidiary. He joined Goodwin Capital in 2002 as a client service associate for the institutional markets group focusing on institutional fixed income clients. Earlier in his career, he was with Fidelity Investments, where he was responsible for client management and sales in the managed account group.
Mr. Caron earned a B.A. from Syracuse University and an M.B.A. from Suffolk University. He is a Chartered Financial Analyst® (CFA®) charterholder and has been working in the investment industry since 1996.
Kyle A. Jennings, CFA. Kyle Jennings is a senior managing director and the head of credit research Newfleet. Mr. Jennings is also co-portfolio manager of Virtus Newfleet Senior Floating Rate Fund and Virtus Newfleet High Yield Fund.
Mr. Jennings has been a member of Newfleet’s corporate credit research team since 1998 and currently covers the gaming, healthcare, and automotive industries. He is also a member of the team that formulates the leveraged finance strategy for the multi-sector fixed income strategies. In addition, Mr. Jennings is responsible for the structuring and management of Newfleet’s CLO platform.
Prior to joining Newfleet in 2011, Mr. Jennings was on the fixed income team at Goodwin Capital Advisers, a former Virtus investment management subsidiary. Before that, he was a credit research analyst in the banking industry for Shawmut Bank, Ironwood Capital, and Citizens Bank.
Mr. Jennings earned a B.S. in finance from the University of Connecticut and is a Chartered Financial Analyst® (CFA®) charterholder. He began his career in the investment industry in 1992.
Daniel Senecal, CFA. Daniel Senecal is a managing director at Newfleet. Mr. Senecal is a sector manager within the emerging markets with regional responsibilities for Latin America, including Mexico and Central America.
Prior to joining Newfleet in 2011, Mr. Senecal was on the fixed income team at Goodwin Capital Advisers, a former Virtus investment management subsidiary. He began at Goodwin Capital in 1997 as a corporate credit research analyst, followed by several roles, including sector manager for investment grade corporate credit and sovereign credit. He was also the lead portfolio manager for the Phoenix High Yield Fund from 2003 until 2005 and the Phoenix Emerging Market Fund from 2004 to 2005.
Earlier in his career, Mr. Senecal completed a formal credit training program at Shawmut National Bank where he was a credit research analyst and lender. He also worked at BankBoston as a corporate bond analyst.
Mr. Senecal earned a B.A. in economics and English from Assumption College and an M.B.A. in finance from the University of Connecticut. He is a Chartered Financial Analyst® (CFA®) charterholder, and he began his career in the investment industry in 1990.
| (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, 2020, 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) |
|||||||||||||
| David L. Albrycht |
Registered Investment Companies: | 16 | $ | 8,970 | 2 | 257 | ||||||||||||
| Other Pooled Investment Vehicles: | 2 | 86 | 0 | 0 | ||||||||||||||
| Other Accounts: | 0 | 0 | 0 | 0 | ||||||||||||||
| Benjamin Caron |
Registered Investment Companies: | 5 | 1,090 | 0 | 0 | |||||||||||||
| Other Pooled Investment Vehicles: | 0 | 0 | 0 | 0 | ||||||||||||||
| Other Accounts: | 0 | 0 | 0 | 0 | ||||||||||||||
| Kyle A. Jennings |
Registered Investment Companies: | 3 | 405 | 1 | 168 | |||||||||||||
| Other Pooled Investment Vehicles: | 1 | 300 | 0 | 0 | ||||||||||||||
| Other Accounts: | 0 | 0 | 0 | 0 | ||||||||||||||
| Daniel Senecal |
Registered Investment Companies: | 1 | 142 | 0 | 0 | |||||||||||||
| Other Pooled Investment Vehicles: | 0 | 0 | 0 | 0 | ||||||||||||||
| Other Accounts: | 0 | 0 | 0 | 0 | ||||||||||||||
| (a)(3) | Compensation Structure of Portfolio Manager(s) or Management Team Members |
Virtus, along with its affiliated investment management firms, including Newfleet (collectively, “Virtus”), is committed to attracting and retaining the highest caliber employees and investment talent. The company’s compensation and benefits program is comprehensive and designed to reward performance and commitment to our shareholders. Virtus personnel 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 corporate board approval, and opportunities to defer their compensation and reduce tax implications.
Following is a more detailed description of Virtus’ compensation structure.
| • | Base Salary – Each individual is paid a fixed base salary, which is designed to be competitive in light of the individual’s experience and responsibilities. Virtus management uses independent, third-party compensation surveys of the investment industry to evaluate competitive market compensation for its employees. |
| • | Incentive Bonus – Incentive bonus pools for non-investment personnel are generally based upon overall Virtus profitability. Annual incentive payments for investment personnel are based on targeted compensation levels, adjusted for profitability and investment performance factors, and a subjective assessment of contribution to the team effort. Individual payments are assessed using comparisons of actual investment performance with specific peer group or index measures. For compensation purposes, a fund’s performance 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. The short-term incentive payment is generally paid in cash, but a portion may be payable in Virtus RSUs. |
| • | Other Benefits – Employees are also eligible to participate in broad-based plans offered by Virtus, including 401(k), health, and other employee benefit plans. |
While portfolio manager 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 ensures 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. We believe we have 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, 2020, beneficial ownership of shares of the Fund by Messrs. Albrycht, Caron, Jennings and Senecal 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 |
Dollar ($) Range of Fund Shares Beneficially Owned | |
| David L. Albrycht |
$0 | |
| Benjamin Caron |
100,001 – 500,000 | |
| Kyle A. Jennings |
0 | |
| Daniel Senecal |
0 |
| (b) | Not applicable. |
| 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 were no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that 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 240.14a-101)), or this Item.
| 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 registrant’s last fiscal quarter 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.
| Item 13. | Exhibits. |
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 Global Multi-Sector Income Fund |
| By (Signature and Title)* |
/s/ George R. Aylward | |
| George R. Aylward, President and Chief Executive Officer (principal executive officer) | ||
| Date |
February 8, 2021 | |
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) |
| Date | February 8, 2021 | |
| By (Signature and Title)* | /s/ W. Patrick Bradley | |
| W. Patrick Bradley, Executive Vice President, | ||
| Chief Financial Officer, and Treasurer | ||
| (principal financial officer) | ||
| Date | February 8, 2021 |
| * | Print the name and title of each signing officer under his or her signature. |
