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
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, 2021
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, 2021
Virtus Global Multi-Sector Income Fund
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”) had adopted a Managed Distribution Plan (the “Plan”) which provided for the Fund to make a
monthly distribution at the rate of $0.08 per share (the rate was $0.10 per share prior to June 2021). Under the terms of the Plan, the Fund sought 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 the
Fund’s notices issued pursuant to Section 19(a) 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.
On November 18, 2021, the Fund announced the removal of its
managed distribution plan, effective with the December distribution. The Fund intends to maintain its level payout at the current distribution rate of $0.08 per share.
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
Shareholder:
I am pleased to
present this annual report, which reviews the performance of the Virtus Global Multi-Sector Income Fund for the 12 months ended November 30, 2021.
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.
During the fiscal year, markets expressed
optimism about the economic reopening but wrestled with the rise of Covid variants, as well as continuing supply chain issues and rising inflation. For the 12 months ended November 30, 2021, the Fund’s net asset value (NAV) returned 1.76%,
including $1.08 in reinvested distributions, and its market price returned 8.22%. For the same period, the Fund’s benchmark, the Bloomberg Global Aggregate Bond Index, returned -3.29%.
The Fund’s investment management team continues to manage your assets with care as they navigate current market and economic challenges. If you have questions about your account, please visit the closed-end fund section of Virtus.com, or call our customer service team at 866-270-7788. We appreciate the confidence you have placed in us, and wish you all the best in 2022.
Sincerely,
George R.
Aylward
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
January 2022
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
January 2022
Refer to the Manager’s Discussion section for your
Fund’s performance. Performance data quoted represents past results. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. Investing involves risk, including the
risk of loss of principal invested.
1
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
November 30, 2021
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, 2021, the Fund’s leverage consisted of $52.5 million of borrowings made pursuant to a line of credit, which represented approximately 28% 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 team at Newfleet and covers the Fund’s portfolio for the
year ended November 30, 2021.
How did the markets perform
during the Fund’s fiscal year ended November 30, 2021?
While the 12-month period included a variety
of market conditions, the impact of COVID-19 worldwide continued to be a dominant factor influencing market performance. Monetary and fiscal policy response evolved to support economic activity and allow market disruptions to heal. The final quarter
of 2020 was marked by vaccine development and distribution, the U.S. presidential election, and a trade deal between the U.K. and the EU.
The first three quarters of 2021 brought a
new U.S. administration, more fiscal stimulus, and bursts of optimism as the world continued its recovery from the COVID-19-related economic lockdowns that dominated early 2020. The virus continued to pose a global challenge to health care systems
and policymakers as they sought the correct mix of protective measures to contain it. Though variants of the virus emerged during the period, vaccines proved effective against them, with recent recommendations that a booster is needed to enhance
waning immunity and further protect against the Omicron variant. Global vaccine distribution and the resulting increase in protected populations contributed to the world’s progress against the virus.
Since the economic recovery remained on
track, the Federal Reserve (the Fed) began removing some of its monetary support, announcing the completion of the wind-down of its secondary market corporate credit facility during the third quarter of 2021. The Fed remained committed to its
communication strategy during the fiscal year, and with what seemed to be less transitory inflation and a strong economy, said it may tighten financial conditions faster than what was previously expected.
During the 12-month period, spread sectors
(non-governmental fixed income investments) outperformed U.S. Treasuries, led by the corporate high yield sector and high yield bank loans.
During the fiscal year, the Fed left its
target interest rate unchanged at a range of 0-0.25%, the rate that was set in late March of 2020 in response to the pandemic.
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 7.
2
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2021
Additionally, over the 12-month period, the
U.S. Treasury yield curve steepened, shifting broadly higher, especially for maturities up to five years.
What factors affected the Fund’s performance during its
fiscal year?
For the fiscal year ended
November 30, 2021, the Fund returned 1.76%, while the Bloomberg Global Aggregate Bond Index, which serves as the Fund’s benchmark, returned -3.29%.
An underweight to U.S. Treasuries in favor of
spread sectors was a driver of the Fund’s outperformance for the fiscal year. Among fixed income sectors, the Fund’s allocations to corporate high yield and high yield bank loans contributed positively to performance for the fiscal year.
Issue selection within corporate high quality securities was also beneficial for relative performance.
The Fund’s allocation to emerging
markets high yield, as well as issue selection within the yankee high quality sector, were detractors from performance for the 12-month period. The Fund’s underweight to the corporate high quality sector also negatively impacted performance
for the 12-month period, despite the fact that issue selection within the sector was positive.
The preceding information is the opinion of
portfolio management only through the end of the period of the report as stated on the cover. Any such opinions are subject to change at any time based upon market conditions and should not be relied upon as investment advice.
The Fund’s portfolio holdings are
subject to change and may not be representative of the portfolio managers’ current or future investment decisions. The mention of individual securities held by the Fund is for informational purposes only and should not be construed as a
recommendation to purchase or sell any securities. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional.
For
information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
3
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2021
Average Annual Total Returns1 for periods ended 11/30/21
| 1 Year | 5 Years | Since
Inception 2/23/12 | |
| Market Value1,2 | 8.22% | 6.32% | 5.24% |
| Net Asset Value1,2 | 1.76% | 4.29% | 5.84% |
| Bloomberg Global Aggregate Bond Index1,3 | -3.29% | 3.29% | 1.71% 4 |
All returns represent past performance which is no guarantee of
future results. Current performance may be higher or lower than the performance shown. Please visit Virtus.com for performance data current to the most recent month-end.
Growth of $10,000 for periods ended 11/30
This graph shows the change in value of a hypothetical
investment of $10,000 in the Fund made on February 23, 2012 (inception date of the Fund) for the years indicated. For comparison, the same investment is shown in the indicated index.
| 1 | Past performance is not indicative of future results. Current performance may be lower or higher than performance in historical periods. |
| 2 | Total return on market value is calculated assuming a purchase of common shares on the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total return on market value is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not reflected. Total return on market value does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. Total return on net asset value uses the same methodology, but with use of net asset value for the beginning and ending values. |
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 7.
4
GLOBAL MULTI-SECTOR INCOME
FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2021
| 3 | The index is unmanaged and not available for direct investment; therefore, its performance does not reflect the expenses associated with active management of an actual portfolio. |
| 4 | The since inception index return is from the Fund’s inception date. |
For information regarding the indexes and certain key investment terms, see
Key Investment Terms starting on page 7.
5
PORTFOLIO HOLDINGS SUMMARY
WEIGHTINGS (Unaudited)
November 30, 2021
The
following tables present the portfolio holdings within certain
sectors
or countries as a percentage of total investments at November 30, 2021.
6
GLOBAL MULTI-SECTOR INCOME
FUND
KEY INVESTMENT TERMS (Unaudited)
November 30, 2021
Bloomberg Global Aggregate Bond Index
The Bloomberg 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.
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.
7
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS
November 30, 2021
($ reported in thousands)
See Notes to Financial Statements
8
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
9
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
10
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
11
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
12
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to
Financial Statements
13
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to
Financial Statements
14
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
15
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to
Financial Statements
16
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
17
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
18
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
19
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
20
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
21
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
22
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
23
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
24
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
25
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
See Notes to Financial Statements
26
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
For information regarding the abbreviations, see the Key
Investment Terms starting on page 7.
See Notes to Financial Statements
27
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2021
($ reported in
thousands)
The following table summarizes the market value of the
Fund’s investments as of November 30, 2021, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total
Value at November 30, 2021 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | ||||
| Assets: | |||||||
| Debt Securities: | |||||||
| Asset-Backed Securities | $ 15,338 | $ — | $ 15,338 | $ — | |||
| Corporate Bonds and Notes | 85,374 | — | 85,368 | 6 | |||
| Foreign Government Securities | 29,631 | — | 29,631 | — | |||
| Leveraged Loans | 24,506 | — | 24,506 | — | |||
| Mortgage-Backed Securities | 12,843 | — | 12,468 | 375 | |||
| Municipal Bonds | 1,822 | — | 1,822 | — | |||
| U.S. Government Securities | 5,595 | — | 5,595 | — | |||
| Equity Securities: | |||||||
| Preferred Stocks | 3,203 | 1,274 | 1,929 | — | |||
| Common Stocks | 506 | 40 | 250 | 216 (1) | |||
| Exchange-Traded Funds | 3,114 | 3,114 | — | — | |||
| Money Market Mutual Fund | 2,104 | 2,104 | — | — | |||
| Total Investments | $184,036 | $6,532 | $176,907 | $597 |
| (1) | Includes internally fair valued securities currently priced at zero ($0). |
Security held by the Fund with an end of period value of
$157 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 $6 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 total value of Level 3 securities compared to total net assets is not material; therefore, the rollforward of Level 3 securities and valuation inputs are not shown for the period ended November 30, 2021.
See Notes to Financial Statements
28
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF ASSETS AND LIABILITIES November 30, 2021
(Reported in thousands except shares and per share amounts)
| Assets | |
|
Investment in securities at value (Identified cost
$185,941) |
$ 184,036 |
|
Cash
|
679 |
| Receivables | |
|
Investment securities sold
|
530 |
|
Dividends and
interest |
1,655 |
|
Prepaid Trustees’
retainer |
2 |
|
Prepaid expenses
|
1 |
|
Other assets (Note
3) |
30 |
|
Total
assets |
186,933 |
| Liabilities | |
|
Borrowings (Note
7) |
52,500 |
| Payables | |
|
Investment securities purchased
|
2,067 |
|
Investment advisory
fees |
145 |
|
Professional fees
|
39 |
|
Trustee deferred compensation plan (Note
3) |
30 |
|
Administration and accounting
fees |
16 |
|
Interest on borrowings (Note
7) |
10 |
|
Other accrued
expenses |
68 |
|
Total
liabilities |
54,875 |
|
Net
Assets |
$ 132,058 |
| Net Assets Consist of: | |
|
Capital paid on shares of beneficial interest (no par value, unlimited
authorization) |
$ 154,966 |
|
Total distributable earnings (accumulated
losses) |
(22,908) |
|
Net
Assets |
$ 132,058 |
|
Common Shares
Outstanding |
11,313,094 |
|
Net Asset Value Per
Share(a) |
$ 11.67 |
| (a) | Net Asset Value Per Share is calculated using unrounded net assets. |
See Notes to Financial Statements
29
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF OPERATIONS YEAR ENDED November 30, 2021
($ reported in thousands)
| Investment Income | |
|
Interest
|
$ 8,671 |
|
Dividends
|
227 |
|
Foreign taxes withheld
|
(8) |
|
Total investment
income |
8,890 |
| Expenses | |
|
Investment advisory
fees |
1,814 |
|
Administration and accounting
fees |
212 |
|
Printing fees and expenses
|
151 |
|
Trustees’ fees and
expenses |
112 |
|
Professional fees
|
42 |
|
Transfer agent fees and
expenses |
14 |
|
Custodian fees
|
3 |
|
Miscellaneous
expenses |
59 |
|
Total expenses before interest
expense |
2,407 |
|
Interest expense on borrowings (Note
7) |
559 |
|
Total expenses after interest
expense |
2,966 |
|
Net investment income
(loss) |
5,924 |
| Net Realized and Unrealized Gain (Loss) on Investments | |
| Net realized gain (loss) from: | |
|
Investments |
2,188 |
|
Foreign currency
transactions |
(96) |
| Net change in unrealized appreciation (depreciation) on: | |
|
Investments |
(5,691) |
|
Foreign currency
transactions |
(1) |
|
Net realized and unrealized gain (loss) on
investments |
(3,600) |
|
Net increase (decrease) in net assets resulting from
operations |
$ 2,324 |
See Notes to Financial Statements
30
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in
thousands)
| Year
Ended November 30, 2021 |
Year
Ended November 30, 2020 | ||
| INCREASE
(DECREASE) IN NET ASSETS From Operations |
|||
|
Net investment income
(loss) |
$ 5,924 | $ 6,257 | |
|
Net realized gain
(loss) |
2,092 | (1,807) | |
|
Net change in unrealized appreciation
(depreciation) |
(5,692) | 3,988 | |
|
Increase (decrease) in net assets resulting from
operations |
2,324 | 8,438 | |
| From Dividends and Distributions to Shareholders | |||
|
Net investment income and net realized
gains |
(5,878) | (5,686) | |
|
Return of
capital |
(6,335) | (9,646) | |
|
Dividends and Distributions to
Shareholders |
(12,213) | (15,332) | |
| From Capital Share Transactions | |||
|
Reinvestment of distributions resulting in the issuance of common stock (5,586 and 3,276 shares,
respectively) |
67 | 44 | |
|
Increase (decrease) in net assets from capital
transactions |
67 | 44 | |
|
Net increase (decrease) in net
assets |
(9,822) | (6,850) | |
| Net Assets | |||
|
Beginning of
period |
141,880 | 148,730 | |
|
End of
period |
$132,058 | $141,880 |
See Notes to Financial Statements
31
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED November 30,
2021
($ reported in thousands)
| Increase (Decrease) in cash | |
| Cash flows provided by (used for) operating activities: | |
|
Net increase (decrease) in net assets resulting from operations
|
$ 2,324 |
| 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
|
110,765 |
|
(Increase) Decrease in investment securities sold receivable
|
600 |
|
Purchases of long-term investments
|
(102,829) |
|
Increase (Decrease) in investment securities purchased payable
|
(429) |
|
Net (purchases) or sales of short-term
investments |
(2,098) |
|
Net change in unrealized (appreciation)/depreciation on investments
|
5,691 |
|
Net realized (gain)/loss on sales of investments from changes in the foreign exchange
rates |
97 |
|
Net realized (gain)/loss on investments
|
(2,188) |
|
Amortization of premium and accretion of discounts on investments
|
(91) |
|
(Increase) Decrease in dividends and interest receivable
|
126 |
|
(Increase) Decrease in prepaid
expenses |
(1) |
|
Increase (Decrease) in affiliated expenses
payable |
(6) |
|
Increase (Decrease) in non-affiliated expenses payable
|
17 |
|
Cash provided by (used for) operating
activities |
11,978 |
| Cash provided by (used for) financing activities: | |
|
Cash distributions paid to shareholders
|
(12,146) |
|
Cash provided by (used for) financing
activities |
(12,146) |
| Net increase (decrease) in cash | (168) |
|
Cash and foreign currency at beginning of
period |
847 |
|
Cash and foreign currency at end of
period |
$ 679 |
| Supplemental cash flow information: | |
|
Reinvestment of dividends and
distributions |
$ 67 |
|
Cash paid during the period for interest expense on
borrowings |
559 |
See Notes to Financial Statements
32
GLOBAL MULTI-SECTOR INCOME
FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
| Year Ended November 30, | |||||||||
| 2021 | 2020 | 2019 | 2018 | 2017 | |||||
| PER SHARE DATA: | |||||||||
|
Net asset value, beginning of
period |
$ 12.55 | $ 13.16 | $ 13.30 | $ 17.06 | $ 16.63 | ||||
| Income (loss) from investment operations: | |||||||||
|
Net investment income
(loss)(1) |
0.52 | 0.55 | 0.58 | 0.72 | 0.89 | ||||
|
Net realized and unrealized gain
(loss) |
(0.32) | 0.20 | 0.79 | (2.79) | 1.41 | ||||
|
Payment from
affiliate |
— | — | — (2) | — | — | ||||
|
Total from investment
operations |
0.20 | 0.75 | 1.37 | (2.07) | 2.30 | ||||
| Dividends and Distributions to Shareholders: | |||||||||
|
Net investment
income |
(0.52) | (0.51) | (0.49) | (0.59) | (0.78) | ||||
|
Net realized
gains |
— | — | — | — | (0.78) | ||||
|
Return of
capital |
(0.56) | (0.85) | (1.02) | (1.10) | (0.31) | ||||
|
Total dividends and distributions to
shareholders |
(1.08) | (1.36) | (1.51) | (1.69) | (1.87) | ||||
|
Net asset value, end of
period |
$ 11.67 | $ 12.55 | $ 13.16 | $ 13.30 | $ 17.06 | ||||
|
Market value, end of
period |
$ 11.56 | $ 11.69 | $ 12.54 | $ 11.75 | $ 18.19 | ||||
|
Total return, net asset
value(3) |
1.76% | 7.70% | 11.82% | (12.24)% | 14.73% | ||||
|
Total return, market
value(3) |
8.22% | 5.28% | 20.61% | (27.29)% | 35.99% | ||||
| RATIOS/SUPPLEMENTAL DATA: | |||||||||
|
Ratio of total expenses after interest expense to average net
assets(4) |
2.14% | 2.40% | 3.13% | 2.96% | 2.42% | ||||
|
Ratio of net investment income (loss) to average net
assets |
4.28% | 4.51% | 4.39% | 4.86% | 5.21% | ||||
|
Portfolio turnover
rate |
54% | 75% | 62% | 58% | 57% | ||||
|
Net assets, end of period
(000’s) |
$132,058 | $141,880 | $148,730 | $150,335 | $192,483 | ||||
|
Borrowings, end of period
(000’s) |
$ 52,500 | $ 52,500 | $ 57,000 | $ 59,000 | $ 69,000 | ||||
|
Asset coverage, per $1,000 principal amount of
borrowings(5) |
$ 3,515 | $ 3,702 | $ 3,609 | $ 3,548 | $ 3,790 | ||||
| (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 and ending values. |
| (4) | Ratio of total expenses, before interest expense on the line of credit, was 1.74%, 1.74%, 1.86%, 1.83% and 1.75% for the years ended November 30, 2021, 2020, 2019, 2018 and 2017, 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
33
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS
November 30, 2021
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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could differ from those estimates and those differences could be significant.
| A. | Security Valuation |
| The Fund 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
34
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
(“NYSE”) (generally 4 p.m. Eastern time) that
may impact the value of securities traded in these non-U.S. markets. In such cases, the Fund fair values non-U.S. securities using an independent pricing service which considers the correlation of the trading patterns of the non-U.S. security to the
intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, 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 convertible
bonds, and restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that
considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, activity of the underlying equities, and current day trade information, as well as dealer supplied prices.
These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments, such as mortgage-backed and asset-backed securities may also incorporate collateral analysis and utilize cash flow models for valuation and are
generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are
generally categorized as Level 2 in the hierarchy. Debt 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. |
35
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
| C. | Income Taxes |
| It is the Fund’s intention to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and to distribute substantially all of its taxable income and capital gains, if any, to its shareholders. Therefore, no provision for federal income taxes or excise taxes has been made. | |
| The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests. | |
| Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Fund’s U.S. federal income tax return is generally subject to examination by the Internal Revenue Service for a period of three years after it is filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction. | |
| D. | Distributions to Shareholders |
| Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. | |
| The Fund had a Managed Distribution Plan which provided for the Fund to make a monthly distribution of $0.10 per share during the period (the rate was reduced by $0.02 per share to $0.08 per share starting with the June 2021 distribution). 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. On November 18, 2021, the Fund announced the removal of its managed distribution plan, effective with the December distribution. The Fund intends to maintain its level payout at the current distribution rate of $0.08 per share. | |
| 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. | Payment-In-Kind Securities |
| The Fund may invest in payment-in-kind securities, which are debt or preferred stock securities that require or permit payment of interest in the form of additional securities. Payment-in-kind securities allow the issuer to avoid or delay the need to generate cash |
36
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
| to meet current interest payments and, as a result, may involve greater risk than securities that pay interest currently or in cash. | |
| G. | 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. | |
| H. | Leveraged Loans |
| The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Leveraged loans are generally non-investment grade and often involve borrowers that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Leveraged loans are typically senior in the corporate capital structure of the borrower. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the leveraged loan. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When investing in loan participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan participation and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the leveraged loan with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the leveraged loan. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. | |
| The Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Leveraged loans may involve foreign borrowers and investments may be denominated in foreign currencies. Direct 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. |
37
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
| I. | Expenses |
| Expenses incurred together by the Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expenses to 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. | |
| J. | Cash and Cash Equivalents |
| Cash and cash equivalents include deposits held at financial institutions, which are available for the Fund’s use with no restrictions, and are inclusive of dollar denominated and foreign currency. |
Note 3. 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 to the Fund. The Adviser manages the Fund’s investment program and general operations of the Fund, including oversight of the Fund’s subadviser. | |
| As compensation for its services to the Fund, the Adviser receives a fee at an annual rate of 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. | Subadviser |
| Newfleet Asset Management, LLC (“Newfleet”), an indirect, wholly-owned subsidiary of Virtus, is the subadviser of the Fund’s portfolio. The subadviser is responsible for the day-to-day portfolio management of the Fund for which it is 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 year ended November 30, 2021, the Fund incurred administration fees totaling $191 which are included in the Statement of Operations within the line item “Administration and accounting fees.” | |
| D. | Trustees’ Fees |
| For the year ended November 30, 2021, the Fund incurred Trustees’ fees totaling $105, which are included in the Statement of Operations within the line item “Trustees’ fees and expenses.” |
38
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
| E. | Investments with Affiliates |
| The Fund is permitted to purchase assets from or sell assets to certain related affiliates under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of assets by the Fund from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers comply with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. | |
| During the period ended November 30, 2021, the Fund did not engage in transactions pursuant to Rule 17a-7 under the 1940 Act. | |
| F. | Trustees Deferred Compensation Plan |
| The Fund provides a deferred compensation plan for its Trustees who receive compensation from the Fund. Under the deferred compensation plan, Trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund, and then, to the extent permitted by the 1940 Act, in turn, may be invested in the shares of affiliated or unaffiliated mutual funds selected by the participating Trustees. Investments in such instruments are included in “Other assets” in the Statement of Assets and Liabilities at November 30, 2021. |
Note 4. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding
U.S. Government and agency securities, and short-term investments) during the period ended November 30, 2021, were as follows:
| Purchases | Sales | |
| $98,272 | $107,081 |
Purchases and
sales of long-term U.S. Government and agency securities during the period ended November 30, 2021, were as follows:
| Purchases | Sales | |
| $4,557 | $3,684 |
Note 5. Federal Income Tax
Information
($ reported in
thousands)
At November 30, 2021, the
approximate aggregate cost basis and the unrealized appreciation (depreciation) of investments for federal income tax purposes were as follows:
| Federal
Tax Cost |
Unrealized
Appreciation |
Unrealized
(Depreciation) |
Net
Unrealized Appreciation (Depreciation) | ||||
| $186,020 | $4,756 | $(6,740) | $(1,984) |
The Fund has
capital loss carryovers available to offset future realized capital gains, if any, to the extent permitted by the Code. Net capital losses are carried forward without expiration
39
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
and
generally retain their short-term and/or long-term tax character, as applicable. For the fiscal year ended November 30, 2021, the Fund’s capital loss carryovers are as follows:
| Short-Term | Long-Term | |
| $7,250 | $13,568 |
The components of
distributable earnings on a tax basis and certain tax attributes for the Fund consist of the following:
| Post-October
Capital Loss Deferred |
Capital
Loss Deferred | |
| $ 77 | $ 20,818 |
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, 2021 and 2020 was as follows:
| 2021 | 2020 | ||
|
Ordinary
Income |
$ 5,878 | $ 5,686 | |
|
Return of
Capital |
6,335 | 9,646 | |
|
Total |
$12,213 | $15,332 |
Certain capital
accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. Permanent reclassifications can arise from differing treatment of certain income and gain transactions and
nondeductible current year net operating losses. These adjustments have no impact on net assets or net asset value per share of the Fund. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different
periods for financial statement and tax purposes will likely reverse at some time in the future.
Note 6. 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 the Fund and its investments, including hampering the ability of the
Fund’s portfolio manager(s) to invest the Fund’s assets as intended.
In July 2017, the head of the United Kingdom
Financial Conduct Authority announced the intention to phase out the use of LIBOR by the end of 2021. However, subsequent announcements by the FCA, the LIBOR administrator and other regulators indicate that it is possible that certain LIBORs may
continue beyond 2021 and certain of the most widely used LIBORs may continue until mid-2023. The Fund may be exposed to financial instruments
40
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
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 invests, 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 7. 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 $72,000 (“Commitment Amount”), which may be increased to $110,000 under certain circumstances. 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 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, 2021 were $49 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
41
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
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, 2021, the
average daily borrowings under the Agreement and the weighted daily average interest rate were $52,500 and 0.96%, respectively.
At November 30, 2021, the amount of
outstanding borrowings was as follows:
| Outstanding
Borrowings |
Interest
Rate | |
| $52,500 | 0.94% |
Note 8.
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 9. Capital Transactions
At November 30, 2021, the Fund had one class
of common stock with no par value of which unlimited shares are authorized and 11,313,094 shares are outstanding.
Note 10. 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 11. Recent Accounting
Pronouncement
In March 2020, the FASB
issued Accounting Standards Update 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 provides optional temporary
financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered reference rates as of the end of 2021. 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.
42
GLOBAL MULTI-SECTOR INCOME
FUND NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2021
Note 12. 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 20, 2021, the Fund paid a
distribution of $0.08 to shareholders of record on December 13, 2021. The distribution had an ex-dividend date of December 10, 2021.
On January 10, 2022, the Fund paid a
distribution of $0.08 to shareholders of record on December 31, 2021. The distribution had an ex-dividend date of January 5, 2022.
43
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, 2021, the related statements of operations and cash flows for the year ended November 30, 2021, the
statements of changes in net assets for each of the two years in the period ended November 30, 2021, including the related notes, and the financial highlights for each of the five years in the period ended November 30, 2021 (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, 2021, 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, 2021 and the financial highlights for each of the five years in the period ended November 30, 2021 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, 2021 by correspondence with the custodian, transfer agent, agent banks, and brokers; when replies were not received from agent banks and 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, 2022
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.
44
GLOBAL MULTI-SECTOR INCOME
FUND
TAX INFORMATION NOTICE (Unaudited)
November 30, 2021
The
following information is being provided in order to meet reporting requirements set forth by the Code and/or to meet state specific requirements. In early 2022, the Fund will notify applicable shareholders of amounts for use in preparing 2021 U.S.
federal income tax forms. Shareholders should consult their tax advisors.
With respect to distributions paid during the fiscal year ended
November 30, 2021, the Fund designates the following amounts (or, if subsequently determined to be different, the maximum amount allowable):
| Qualified
Dividend Income % (for non-corporate shareholders) |
Dividend
Received Deduction % (for corporate shareholders) |
Long-Term
Capital Gain Distributions ($) | |||
| 0% | 0% | $0 |
45
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.
46
GLOBAL MULTI-SECTOR INCOME
FUND
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.
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.
47
GLOBAL MULTI-SECTOR INCOME
FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
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.
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.
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 effectively change a security that was considered short- or intermediate-term into a long-term
48
GLOBAL MULTI-SECTOR INCOME
FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
security. Long-term securities tend to
fluctuate in value more widely in response to changes in interest rates than shorter-term securities.
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.
Leverage:
The Fund employs leverage through a line of credit. While this leverage often serves to increase yield, it also subjects the Fund to increased risks. These risks may include the likelihood of increased price and NAV
volatility and the possibility that the Fund’s common stock income will fall if the interest rate on any borrowings rises. The use of leverage is premised upon the expectation that the cost of leverage will be lower than the return on the
investments made with the proceeds. However, if the income or capital appreciation from the securities purchased with such proceeds is not sufficient to cover the cost of leverage or if the Fund incurs capital losses, the return to common
stockholders will be less than if the leverage had not been used. There can be no assurance that a leveraging strategy will be successful during any period in which it is employed.
Market Volatility: The value of the securities in which the Fund invests may go up or down in response to the prospects of individual issuers and/or general economic conditions. Such price changes may be temporary or may last for extended
periods.
Instability in the
financial markets may expose the Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments that it holds. In response to financial markets that experienced extreme volatility, and in some cases a lack of
liquidity, the U.S Government and other governments have taken a number of unprecedented actions, including acquiring
49
GLOBAL MULTI-SECTOR INCOME
FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES
AND PRINCIPAL RISKS (Unaudited) (Continued)
distressed assets from financial
institutions and acquiring ownership interest in those institutions. The implications of government ownership and disposition of these assets are unclear. Additional legislation or governmental regulation may also change the way in which funds
themselves are regulated, which could limit or preclude the Fund’s ability to achieve its investment objective. 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 the Fund and its investments, hampering the ability of the Fund’s portfolio managers to invest the Fund’s assets as intended.
Management Risk: The Fund is subject to management risk because it is an actively managed investment portfolio with broad investment mandates. The Adviser and subadviser will apply investment techniques and risk analysis in making
investment decisions for the Fund, but there can be no guarantee that these will produce the desired results.
Closed-End Fund: Closed-end funds may trade at a discount or premium from their net asset values, which may affect whether an investor will realize gains or losses. They may also employ leverage, which may increase
volatility.
No Guarantee: There is no guarantee that the Fund will meet its objective.
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.
The Board of Trustees had adopted a Managed
Distribution Plan (the “Plan”) which provided for the Fund to make a monthly distribution at the rate of $0.08 per share (rate was $0.10 per share prior to June 2021). Under the terms of the Plan, the Fund sought 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. On November 18, 2021, the Fund announced the removal of its managed distribution plan. The
Fund intends to maintain its level payout at the current distribution rate of $0.08 per share.
50
GLOBAL MULTI-SECTOR INCOME
FUND
Automatic Reinvestment and Cash Purchase Plan (Unaudited)
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.
51
GLOBAL MULTI-SECTOR INCOME
FUND
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.
52
GLOBAL MULTI-SECTOR INCOME
FUND
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.
53
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF GLOBAL
MULTI-SECTOR
INCOME FUND (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 2 and November 17, 2021, 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
54
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF GLOBAL
MULTI-SECTOR
INCOME FUND (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 year-to-date, 1-, 3- and 5-year periods ended June 30, 2021, was below the median of the Performance Universe for the same periods, the Fund outperformed its benchmark for the same periods. The Trustees discussed the
Fund’s underperformance and the reasons therefor among themselves and with management.
55
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF GLOBAL
MULTI-SECTOR
INCOME FUND (Unaudited) (Continued)
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 was comprised of 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 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
56
CONSIDERATION OF ADVISORY AND
SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF GLOBAL
MULTI-SECTOR
INCOME FUND (Unaudited) (Continued)
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.
57
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 |
Other
Trusteeships Held by Trustee |
| Burke,
Donald C. YOB: 1960 Served Since: 2020, Class ll 98 Portfolios |
Retired. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (55 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Alternative Solutions Trust (2 portfolios); Director (since 2014) closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director, Avista Corp. (energy company) (since 2011); Trustee, Goldman Sachs Fund Complex (2010 to 2014); and Director, BlackRock Luxembourg and Cayman Funds (2006 to 2010). |
58
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Cogan,
Sarah E. YOB: 1956 Served Since: 2021, Class ll 102 Portfolios |
Retired Partner, Simpson Thacher & Bartlett LLP (“STB”) (law firm) (since 2018); Director, Girl Scouts of Greater New York (since 2016); Trustee, Natural Resources Defense Council, Inc. (since 2013); and formerly, Partner, STB (1989 to 2018). | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (since 2021), Virtus Alternative Solutions Trust (2 portfolios), Virtus Mutual Fund Family (55 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Trustee (since 2019), Virtus AllianzGI Closed-End Funds (7 portfolios); Trustee (since 2019), PIMCO California Municipal Income Fund, PIMCO California Municipal Income Fund II, PIMCO California Municipal Income Fund III, PIMCO Municipal Income Fund, PIMCO Municipal Income Fund II, PIMCO Municipal Income Fund III, PIMCO New York Municipal Income Fund, PIMCO New York Municipal Income Fund II, PIMCO New York Municipal Income Fund III, PIMCO Energy and Tactical Credit Opportunities Fund, PCM Fund, Inc, PIMCO Corporate & Income Strategy Fund, PIMCO Corporate & Income Opportunity Fund, PIMCO Dynamic Credit and Mortgage Income Fund, PIMCO Dynamic Income Fund, PIMCO Global StocksPLUS® & Income Fund, PIMCO High Income Fund, PIMCO Income Opportunity Fund, PIMCO Income Strategy Fund, PIMCO Income Strategy Fund II, PIMCO Strategic Income Fund, Inc., PIMCO Flexible Credit Income Fund and PIMCO Flexible Municipal Income Fund; and Trustee (since 2019), PIMCO Managed Accounts Trust (5 portfolios). |
59
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| DeCotis,
Deborah A. YOB: 1952 Served Since: 2021, Class I 102 Portfolios |
Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); Member, Council on Foreign Relations (since 2013); Trustee, Smith College (since 2017); and Director, Watford Re (since 2017). Formerly, Co-Chair Special Projects Committee, Memorial Sloan Kettering (2005 to 2015); Trustee, Stanford University (2010 to 2015); and Principal, LaLoop LLC, a retail accessories company (1999 to 2014). | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, and Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (since 2021), Virtus Alternative Solutions Trust (2 portfolios), Virtus Mutual Fund Family (55 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2020), PIMCO Dynamic Income Opportunities Fund; Trustee (since 2019), PIMCO Energy and Tactical Credit Opportunities Fund and Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2018), PIMCO Flexible Municipal Income Fund; Trustee (since 2017), PIMCO Flexible Credit Income Fund and Virtus AllianzGI Convertible & Income 2024 Target Term Fund; Trustee (since 2015), Virtus AllianzGI Diversified Income & Convertible Fund; Trustee (since 2014), Virtus Investment Trust (13 portfolios); Trustee (since 2013), PIMCO Dynamic Credit and Mortgage Income Fund; Trustee (since 2012), PIMCO Dynamic Income Fund; Trustee (since 2011), Virtus Strategy Trust (11 portfolios); Trustee (since 2011), PIMCO California Municipal Income Fund II, PIMCO California Municipal Income Fund III, PIMCO Municipal Income Fund, PIMCO Municipal Income Fund II, PIMCO Municipal Income Fund III, PIMCO New York Municipal Income Fund, PIMCO New York Municipal Income Fund II, PIMCO New York Municipal Income Fund III, PCM Fund, Inc., PIMCO Corporate & Income Strategy Fund, PIMCO Corporate & Income Opportunity Fund, PIMCO Global StocksPLUS® & Income Fund, PIMCO High Income Fund, PIMCO Income Opportunity Fund, PIMCO Income Strategy Fund, PIMCO Income Strategy Fund II, PIMCO Strategic Income Fund, Inc., and PIMCO Managed Accounts Trust (5 portfolios); and Trustee (since 2011), Virtus AllianzGI Convertible & Income Fund, Virtus AllianzGI Convertible & Income Fund II, Virtus AllianzGI Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund. |
60
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Drummond,
F. Ford YOB: 1962 Served Since: 2021, Class III 102 Portfolios |
Owner/Operator (since 1998), Drummond Ranch; formerly Board Member (2006 to 2020) and Chairman (2016 to 2018), Oklahoma Water Resources Board; Director (1998 to 2008), The Cleveland Bank; and General Counsel (1998 to 2008), BMI Health Plans (benefits administration). | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (since 2021), Virtus Alternative Solutions Trust (2 portfolios), Virtus Mutual Fund Family (55 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2017), Virtus AllianzGI Convertible & Income 2024 Target Term Fund; Trustee (since 2015), Virtus AllianzGI Convertible & Income Fund, Virtus AllianzGI Convertible & Income Fund II, Virtus AllianzGI Diversified Income & Convertible Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus AllianzGI Equity & Convertible Income Fund; Trustee (since 2014), Virtus Strategy Trust (11 portfolios); Director (since 2011), Bancfirst Corporation; and Trustee (since 2006), Virtus Investment Trust (13 portfolios). |
| Harris,
Sidney E. YOB: 1949 Served Since: 2020, Class II 95 Portfolios |
Private Investor (since 2021); Professor and Dean Emeritus (2015 to 2021), Professor (1997 to 2014), Dean (1997 to 2004), J. Mack Robinson College of Business, Georgia State University. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; and Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2019), Mutual Fund Directors Forum; Trustee (since 2017), Virtus Mutual Fund Family (55 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (2 portfolios); Trustee (2013 to 2020) and Honorary Trustee (since 2020), KIPP Metro Atlanta; Director (1999 to 2019), Total System Services, Inc.; Trustee (2004 to 2017), RidgeWorth Funds; Chairman (2012 to 2017), International University of the Grand Bassam Foundation; Trustee (since 2012), International University of the Grand Bassam Foundation; and Trustee (2011 to 2015), Genspring Family Offices, LLC. |
61
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Mallin,
John R. YOB: 1950 Served Since: 2020, Class II 95 Portfolios |
Partner/Attorney (since 2003), McCarter & English LLP (law firm) Real Property Practice Group; and Member (since 2014), Counselors of Real Estate. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (55 portfolios) and Virtus Alternative Solutions Trust (2 portfolios); Director (since 2019), 1892 Club, Inc. (non-profit); Director (2013 to 2020), Horizons, Inc. (non-profit); and Trustee (since 1999), Virtus Variable Insurance Trust (8 portfolios). |
| McDaniel,
Connie D. YOB: 1958 Served Since: 2020, Class III 95 Portfolios |
Retired (since 2013). Vice President, Chief of Internal Audit, Corporate Audit Department (2009 to 2013); Vice President Global Finance Transformation (2007 to 2009); Vice President and Controller (1999 to 2007), The Coca-Cola Company. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Director (since 2019), Global Payments Inc.; Trustee (since 2017), Virtus Mutual Fund Family (55 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (2 portfolios); Director (since 2021), North Florida Land Trust; Director (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. |
62
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| McLoughlin,
Philip R. YOB: 1946 Served Since: 2011, Class III Chairman 105 Portfolios |
Retired. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios), Virtus Strategy Trust (11 portfolios), Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund, Virtus AllianzGI Convertible & Income Fund II, Virtus AllianzGI Diversified Income & Convertible Fund, Virtus AllianzGI Equity & Convertible Income Fund and Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since 2022) and Advisory Board Member (2021), Virtus AllianzGI Convertible & Income 2024 Target Term Fund and Virtus AllianzGI Convertible & Income Fund; Director and Chairman (since 2016), Virtus Total Return Fund Inc.; Director and Chairman (2016 to 2019), the former Virtus Total Return Fund Inc.; Director and Chairman (2014 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (2 portfolios); Trustee and Chairman (since 2011), Virtus Global Multi-Sector Income Fund; Chairman and Trustee (since 2003), Virtus Variable Insurance Trust (8 portfolios); Director (since 1995), closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director (1991 to 2019) and Chairman (2010 to 2019), Lazard World Trust Fund (closed-end investment firm in Luxembourg); and Trustee (since 1989) and Chairman (since 2002), Virtus Mutual Fund Family (55 portfolios). |
| McNamara,
Geraldine M. YOB: 1951 Served Since: 2020, Class I 98 Portfolios |
Retired. | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016) Virtus Alternative Solutions Trust (2 portfolios); Trustee (since 2015), Virtus Variable Insurance Trust (8 portfolios); Director (since 2003), closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); and Trustee (since 2001), Virtus Mutual Fund Family (55 portfolios). |
63
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Rogers,
James B., Jr. YOB: 1942 Served Since: 2016, Class I 1 Portfolio |
Private Investor (since 1980) | Director (1988 to 2021), Virtus Total Return Fund Inc.; Director (1986 to 2019), the former Virtus Total Return Fund Inc.; Trustee (since 2016), Virtus Global Multi-Sector Income Fund; Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2019), Nanomedics Co. Ltd.; Director (since 2018), Ananti Inc. and Sirius International Insurance Group Ltd.; Director (2018 to 2019), 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 (2014 to 2019), Sinofortune Financial Holdings Limited; Director (since 2014), PJSC Phos Agro; Director (2012 to 2019), 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 1990), Beeland Interests (Media and Investments). |
| Walton,
R. Keith YOB: 1964 Served Since: 2016, Class I 102 Portfolios |
Managing Director (2020 to 2021), 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 2022), Virtus AllianzGI Diversified Income & Convertible Fund; Advisory Board Member (since 2022), Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund, Virtus AllianzGI Convertible & Income 2024 Target Term Fund, Virtus AllianzGI Convertible & Income Fund, Virtus AllianzGI Convertible & Income Fund II, Virtus AllianzGI Equity & Convertible Income Fund and Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Trustee (since 2020) Virtus Alternative Solutions Trust (2 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (55 portfolios); Director (since 2017), certain funds advised by Bessemer Investment Management LLC; Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2016), Virtus Global Multi-Sector Income Fund; Director (2006 to 2019), Systematica Investments Limited Funds; Director (2006 to 2017), BlueCrest Capital Management Funds; Trustee (2014 to 2017), AZ Service; Director (since 2004), Virtus Total Return Fund Inc.; and Director (2004 to 2019), the former Virtus Total Return Fund Inc. |
64
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Zino,
Brian T. YOB: 1952 Served Since: 2016, Class I 102 Portfolios |
Retired. Various roles (1982 to 2009), J. & W. Seligman & Co. Incorporated, including President (1994 to 2009). | Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios) Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Trustee (since 2022) and Advisory Board Member (2021), Virtus AllianzGI Closed-End Funds (7 portfolios); Trustee (since 2020) Virtus Alternative Solutions Trust (2 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (55 portfolios); Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2016), Virtus Global Multi-Sector Income Fund; Director (since 2014), Virtus Total Return Fund Inc.; Director (2014 to 2019), the former Virtus Total Return Fund Inc.; Trustee (since 2011), Bentley University; Director (1986 to 2009) and President (1994 to 2009), J&W Seligman Co. Inc.; Director (1998 to 2009), Chairman (2002 to 2004) and Vice Chairman (2000 to 2002), ICI Mutual Insurance Company; Member, Board of Governors of ICI (1998 to 2008). |
65
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
Interested Trustee
The individual listed below is an
“interested person” of the Fund, as defined in Section 2(a)(19) of the 1940 Act, as amended, and the rules and regulations thereunder.
| Name,
Year of Birth, Length of Time Served, and Number of Portfolios in Fund Complex Overseen by Trustee |
Principal
Occupation(s) During Past 5 Years |
Other
Trusteeships Held by Trustee |
| Aylward,
George R.* Trustee and President YOB: 1964 Served Since: 2014, Class lll 107 Portfolios |
Director, President and Chief Executive Officer (since 2008), Virtus Investment Partners, Inc. and/or certain of its subsidiaries, and various senior officer positions with Virtus affiliates (since 2005). | Member, Board of Governors of the Investment Company Institute (since 2021); Trustee and President (since 2021), The Merger Fund®, The Merger Fund® VL; Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Trustee, President and Chief Executive Officer (since 2021), Virtus AllianzGI Closed-End Funds (7 portfolios); Chairman and Trustee (since 2015), Virtus ETF Trust II (5 portfolios); Director, President and Chief Executive Officer (2014 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and President (since 2013), Virtus Alternative Solutions Trust (2 portfolios); Director (since 2013), Virtus Global Funds, PLC (5 portfolios); Trustee (since 2012) and President (since 2010), Virtus Variable Insurance Trust (8 portfolios); Trustee, President and Chief Executive Officer (since 2011), Virtus Global Multi-Sector Income Fund; Trustee and President (since 2006) and Executive Vice President (2004 to 2006), Virtus Mutual Fund Family (55 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.
66
FUND MANAGEMENT TABLES
(Unaudited) (Continued)
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 |
| Moyer,
William R. YOB: 1944 Served Since: 2020 95 Portfolios |
Private investor (since 2004); and Financial and Operations Principal (2006 to 2017), Newcastle Distributors LLC (broker dealer). | Advisory Board Member (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (11 portfolios); Advisory Board Member (since 2020), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (55 portfolios); Advisory Board Member (since 2020) and Director (2016 to 2019), Virtus Total Return Fund Inc.; Director (2016 to 2019), the former Virtus Total Return Fund Inc.; Advisory Board Member (2020 to 2021) and Director (2014 to 2019), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Advisory Board Member (since 2020) and Trustee (2011 to 2019), Virtus Global Multi-Sector Income Fund; Advisory Board Member (since 2020) and Trustee (2013 to 2016), Virtus Alternative Solutions Trust (2 portfolios). |
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 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust; Virtus AllianzGI Closed-End Funds, Virtus Investment Trust and Virtus Strategy Trust; 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. |
67
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 |
| 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 positions (since 2006), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Executive Vice President, Chief Financial Officer and Treasurer (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust, Virtus AllianzGI Closed-End Funds, Virtus Investment Trust, and Virtus Strategy Trust; 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. |
68
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 and Chief Compliance Officer (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust, Virtus AllianzGI Closed-End Funds, Virtus Investment Trust, and Virtus Strategy Trust; 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. |
69
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 |
| 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, Chief Legal Officer, Counsel and Secretary (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust, Virtus Investment Trust and Virtus Strategy Trust; Vice President and Assistant Secretary (since 2021), Virtus AllianzGI Closed-End Funds; 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 (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc., Vice President, Chief Legal Officer and Secretary (since 2020), 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. |
| 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 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust, Virtus AllianzGI Closed-End Funds, Virtus Investment Trust, and Virtus Strategy Trust; 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). |
70
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 |
| Smirl,
Richard W. YOB: 1967 |
Executive
Vice President (since 2021). |
Executive Vice President, Product Management (since 2021), and Executive Vice President and Chief Operating Officer (since 2021), Virtus Investment Partners, Inc. and/or certain of its subsidiaries; Executive Vice President (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust, Virtus AllianzGI Closed-End Funds, Virtus Investment Trust, Virtus Strategy Trust, Virtus Global Multi-Sector Income Fund, Virtus Mutual Fund Family, and Virtus Total Return Fund Inc.; Executive Vice President (May to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Chief Operating Officer (2018 to 2021), Russell Investments; Executive Director (Jan. to July 2018), State of Wisconsin Investment Board; and Partner and Chief Operating Officer (2004 to 2018), William Blair Investment Management. |
71
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 an “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 has 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 an “independent” Trustee, 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 $30,050 for 2021 and $25,155 for 2020. |
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 $2,775 for 2021 and $3,067 for 2020. 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 $3,353 for 2021 and $3,400 for 2020. |
“Tax Fees” are those primarily associated with review of the Trust’s tax provision and qualification as a regulated investment company (RIC) in connection with audits of the Trust’s financial statement, review of year-end distributions by the Fund to avoid excise tax for the Trust, periodic discussion with management on tax issues affecting the Trust, 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 2021 and $0 for 2020. |
| (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 but are not included in the general pre-approval in the event such approval is sought between regularly scheduled meetings. In any event, the Board is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting.
| (e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: |
| (b) | 0% |
| (c) | 0% |
| (d) | N/A |
| (f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was less than fifty percent. |
| (g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $6,128 for 2021 and $6,467 for 2020. |
| (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. During the period covered by the report, the members of the audit committee were: Donald C. Burke, Deborah A. DeCotis (who joined as an advisory member on February 1, 2021, and became a regular member on July 1, 2021), John R. Mallin,Connie D. McDaniel and Brian T. Zino. William R. Moyer also serves as an advisory member of the audit committee. |
| (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(a) 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 (the “Policy”) stating the Fund’s intention to exercise stock ownership rights with respect to portfolio securities in a manner that is reasonably anticipated to further the best economic interests of shareholders of the Fund. The Fund or its voting delegates will endeavor to analyze and vote all proxies that are likely to have financial implications, and where appropriate, to participate in corporate governance, shareholder proposals, management communications and legal proceedings. The Fund or its voting delegates must also identify potential or actual conflicts of interest in voting proxies and must address any such conflict of interest in accordance with the Policy.
In the absence of a specific direction to the contrary from the Board, the Adviser or the subadviser that is managing the Fund is responsible for voting proxies for such fund, or for delegating such responsibility to a qualified, independent organization engaged by the Adviser or respective subadviser to vote proxies on its behalf. The applicable voting party will vote proxies in accordance with the Policy or its own policies and procedures, which must be reasonably designed to further the best economic interests of the affected fund shareholders. Because the Policy and the applicable voting party’s policies and procedures used to vote proxies for the funds both are designed to further the best economic interests of the affected fund shareholders, they are not expected to conflict with one another although the types of factors considered by the applicable voting party under its own policies and procedures may be in addition to or different from the ones listed below for the Policy.
The Policy specifies the types of factors to be considered when analyzing and voting proxies on certain issues when voting in accordance with the Policy, including, but not limited to:
| • | Anti-takeover measures – the overall long-term financial performance of the target company relative to its industry competition. |
| • | Corporate Governance Matters – tax and economic benefits of changes in the state of incorporation; dilution or improved accountability associated with changes in capital structure. |
| • | Contested elections – the qualifications of all nominees; independence and attendance record of board and key committee members; entrenchment devices in place that may reduce accountability. |
| • | Stock Option and Other Management Compensation Issues—executive pay and spending on perquisites, particularly in conjunction with sub-par performance and employee layoffs. |
| • | Shareholder proposals – whether the proposal is likely to enhance or protect shareholder value; whether identified issues are more appropriately or effectively addressed by legal or regulatory changes; whether the issuer has already appropriately addressed the identified issues; whether the proposal is unduly burdensome or prescriptive; whether the issuer’s existing approach to the identified issues is comparable to industry best practice. |
The Fund and its voting delegates seek to avoid actual or perceived conflicts of interest of Fund shareholders, on the one hand, and those of the Adviser, subadviser, other voting delegate, Distributor, or any affiliated person of the Fund, on the other hand.
Depending on the type and materiality, the Board or its delegates may take the following actions, among others, in addressing any material conflicts of interest that arise with respect to voting (or directing voting delegates to vote): (i) rely on the recommendations of an established, independent third party proxy voting vendor; (ii) vote pursuant to the recommendation of the proposing delegate; (iii) abstain; (iv) where two or more delegates provide conflicting requests, vote shares in proportion to the assets under management of each proposing delegate; (v) vote shares in the same proportion as the vote of all other shareholders of such issuer; or (vi) the Adviser may vote proxies where the subadviser has a direct conflict of interest. The Policy requires each Adviser/subadviser that is a voting delegate to notify the Chief Compliance Officer of the Trust (or, in the case of a subadviser, the Chief Compliance Officer of the Adviser) of any actual or potential conflict of interest that is identified, and provide a recommended course of action for protecting the best interests of the affected fund’s shareholders. No Adviser/subadviser or other voting delegate may waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board (or the Executive Committee thereof) or the Chief Compliance Officer of the Trust.
The Policy further imposes certain record-keeping and reporting requirements on each Adviser/subadviser or other voting delegate.
Information regarding how the funds voted proxies relating to portfolio securities during the most recent 12-month period ended September 30 will be available, no later than August 31 of each year, free of charge by calling, toll-free, 800.243.1574, or on the SEC’s Web site at www.sec.gov.
During the period of the report, any proxies for the Fund were handled by the Fund’s subadviser, Newfleet Asset Management, LLC (“Newfleet”). Following are a summary of Newfleet’s proxy voting policies.
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.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
The names, titles, and length of service of the person or persons employed by or associated with the registrant or an investment adviser of the registrant who are primarily responsible for the day-to-day management of the registrant’s portfolio (“Portfolio Manager”) and each Portfolio Manager’s business experience during the past 5 years as of the date of filing of this report:
| (a)(1) | Identification of Portfolio Manager(s) or Management Team Members and Description of Role of Portfolio Manager(s) or Management Team Members |
Newfleet Asset Management, LLC
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 Total Return Fund (NYSE: ZTR). 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 High Yield Bond 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 |
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, 2021, 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 Funds 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: | 15 | 9,217 | 1 | 92 | |||||||||||||
| Other Pooled Investment Vehicles: | 2 | 112 | None | None | ||||||||||||||
| Other Accounts: | None | None | None | None | ||||||||||||||
| Benjamin Caron |
Registered Investment Companies: | 5 | 1,404 | None | None | |||||||||||||
| Other Pooled Investment Vehicles: | None | None | None | None | ||||||||||||||
| Other Accounts: | None | None | None | None | ||||||||||||||
| Kyle A. Jennings |
Registered Investment Companies: | 3 | 390 | None | None | |||||||||||||
| Other Pooled Investment Vehicles: | 1 | 194 | None | None | ||||||||||||||
| Other Accounts: | None | None | None | None | ||||||||||||||
| Daniel Senecal |
Registered Investment Companies: | 1 | 133 | None | None | |||||||||||||
| Other Pooled Investment Vehicles: | None | None | None | None | ||||||||||||||
| Other Accounts: | None | None | None | None | ||||||||||||||
| (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 the compensation structure:
| • | Base Salary: Each individual is paid a fixed based salary, which is designed to be competitive in light of the individual’s experience and responsibilities. Management uses independent, third-party compensation surveys of the investment industry to evaluate competitive market compensation for its employees. |
| • | Incentive Bonus: 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 restricted stock units or as deferred cash that appreciates or depreciates in value based on the rate of return of one or more mutual funds managed or advised by the investment professional. |
| • | 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 managers compensation contains a performance component, this component is adjusted to reward investment personnel for managing within the stated framework and for not taking unnecessary risk. This approach helps ensure that investment management personnel remain focused on managing and acquiring securities that correspond to a fund’s mandate and risk profile and are discouraged from taking on more risk and unnecessary exposure to chase performance for personal gain. The Investment Adviser believes it has appropriate controls in place to handle any potential conflicts that may result from a substantial portion of portfolio manager compensation being tied to performance.
| (a)(4) | Disclosure of Securities Ownership |
For the most recently completed fiscal year ended November 30, 2021, 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 Team Member |
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 2/7/22
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 2/7/22
| By (Signature and Title)* |
/s/ W. Patrick Bradley | |||
| W. Patrick Bradley, Executive Vice President, Chief Financial Officer, and Treasurer (principal financial officer) |
Date 2/7/22
| * | Print the name and title of each signing officer under his or her signature. |