SEC Form N-CSR filed by Virtus Stone Harbor Emerging Markets Income Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22473

Virtus Stone Harbor Emerging Markets Income Fund

(Exact name of registrant as specified in charter)

101 Munson Street

Greenfield, MA 01301-9683

(Address of principal executive offices) (Zip code)

Jennifer Fromm, Esq.

Vice President, Chief Legal Officer, Counsel and Secretary for Registrant

One Financial Plaza

Hartford, CT 06103-2608

(Name and address of agent for service)

Registrant’s telephone number, including area code: (866) 270-7788

Date of fiscal year end: November 30

Date of reporting period: November 30, 2023

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

ANNUAL REPORT

---

November 30, 2023

Virtus Stone Harbor Emerging Markets Income Fund

---

Not FDIC Insured • No Bank Guarantee • May Lose Value

Table of Contents

MESSAGE TO SHAREHOLDERS

To Virtus Stone Harbor Emerging Markets Income Fund Shareholders:

I am pleased to present this annual report, which reviews the performance of your Fund for the 12 months ended November 30, 2023.

Effective December 15, 2023, the Virtus Stone Harbor Emerging Markets Total Income Fund (NYSE: EDI) was reorganized into your Fund (EDF). The two funds had substantially similar investment objectives and strategies, and the same fund management. The merger resulted in a higher combined level of assets that may offer reduced costs, economies of scale, and increased efficiencies.

The fiscal year saw a generalized recovery from the volatility that characterized much of 2022. But investor sentiment swung between optimism and pessimism depending on the outlook for inflation and interest rates. For the 12 months ended November 30, 2023, the Fund’s net asset value (NAV) returned 21.20%, and its market price returned 22.14%. For the same period, the Fund’s composite benchmark, which is composed of the three sectors of emerging markets (EM) debt, returned 8.50%. The performance of the underlying sectors was 6.42% for hard currency sovereign debt, as represented by the JPMorgan EMBI Global Diversified Index, 11.56% for local currency sovereign debt, as represented by the JPMorgan GBI-EM Global Diversified Index, and 7.47% for corporate debt, as represented by the JPMorgan CEMBI Broad Diversified Index.

Please call our customer service team at 866-270-7788 if you have questions about your account or require assistance. We appreciate your business and remain committed to your long-term financial success.

Sincerely,

George R. Aylward
President, Chief Executive Officer, and Trustee
Virtus Stone Harbor Emerging Markets Income Fund
January 2024

---

Refer to the Manager’s Discussion section for your Fund’s performance. Performance data quoted represents past results. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. Investing involves risk, including the risk of loss of principal invested.

1

Table of Contents

VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)

November 30, 2023

Average Annual Total Returns¹  for periods ended 11/30/23

---

	1 Year	5 Years	10 Years
Market Value1,2	22.14%	-4.54%	0.56%
Net Asset Value1,2	21.20%	-0.93%	0.52%
Composite Index1,3	8.50%	1.54%	2.05%
J.P. Morgan GBI-EM Global Diversified Index1,3	11.56%	0.77%	-0.28%
J.P. Morgan CEMBI Broad Diversified Index1,3	7.47%	2.72%	3.48%
J.P. Morgan EMBI Global Diversified Index1,3	6.42%	1.00%	2.79%

All returns represent past performance which is no guarantee of future results. Current performance may be higher or lower than the performance shown. Please visit Virtus.com for performance data current to the most recent month-end.

Growth of $10,000  for periods ended 11/30

---

This graph shows the change in value of a hypothetical investment of $10,000 in the Fund for the years indicated. For comparison, the same investment is shown in the indicated index.

1	Past performance is not indicative of future results. Current performance may be lower or higher than performance in historical periods.

For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.

4

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders of Virtus Stone Harbor Emerging Markets Income Fund

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) as of November 30, 2023, the related statements of operations and cash flows for the year ended November 30, 2023, the statement of changes in net assets for the year ended November 30, 2023, including the related notes, and the financial highlights for the year ended November 30, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of November 30, 2023, the results of its operations and its cash flows for the year then ended, the changes in its net assets for the period ended November 30, 2023 and the financial highlights for the period ended November 30, 2023 in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Fund as of and for the year ended November 30, 2022 and the financial highlights for each of the periods ended on or prior to November 30, 2022 (not presented herein, other than the statements of changes in net assets and the financial highlights) were audited by other auditors whose report dated January 27, 2023 expressed an unqualified opinion on those financial statements and financial highlights.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of November 30, 2023 by correspondence with the custodian, transfer agent and brokers; when a reply was not received from a broker, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania

January 24, 2024

We have served as the auditor of one or more of the investment companies in the Virtus group of investment companies since at least 1977. We have not been able to determine the specific year we began serving as auditor.

41

Table of Contents

Virtus Stone Harbor Emerging Markets Income Fund

c/o Computershare Investor Services

P.O. Box 43078

Providence, RI 02940-3078

For more information about
Virtus Closed-End Funds, please
contact us at 1-866-270-7788
or [email protected]
or visit Virtus.com.

8468

01-24

Audit Fees

Audit-Related Fees

Tax Fees

“Tax Fees” are those primarily associated with review of the Fund’s tax provision and qualification as a regulated investment company (RIC) in connection with audits of the Fund’s financial statement, review of year-end distributions by the Fund to avoid excise tax, periodic discussion with management on tax issues affecting the Fund, and reviewing and signing the Fund’s federal income tax returns.

All Other Fees

The Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) Board has adopted policies and procedures with regard to the pre-approval of services provided by PwC. Audit, audit-related and tax compliance services provided to the Fund on an annual basis require specific pre-approval by the Board. As noted above, the Board must also approve other non-audit services provided to the Fund and those non-audit services provided to the Fund’s Affiliate Service Providers that related directly to the operations and financial reporting of the Fund. Certain of these non-audit services that the Board believes are a) consistent with the SEC’s auditor independence rules and b) routine and recurring services that will not impair the independence of the independent auditors may be approved by the Board without consideration on a specific case-by-case basis (“general pre-approval”).

The Audit Committee has determined that the Chair of the Audit Committee, may provide pre-approval for such services that meet the above requirements but are not included in the general pre-approval in the event such approval is sought between regularly scheduled meetings. In any event, the Board is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting.

(b) 0%

(c) 0%

(d) N/A

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:

The Fund and its voting delegates seek to avoid actual or perceived conflicts of interest of Fund shareholders, on the one hand, and those of the Adviser, subadviser, other voting delegate, Distributor, or any affiliated person of the Fund, on the other hand.

Depending on the type and materiality, the Board or its delegates may take the following actions, among others, in addressing any material conflicts of interest that arise with respect to voting (or directing voting delegates to vote): (i) rely on the recommendations of an established, independent third party proxy voting vendor; (ii) vote pursuant to the recommendation of the proposing delegate; (iii) abstain; (iv) where two or more delegates provide conflicting requests, vote shares in proportion to the assets under management of each proposing delegate; (v) vote shares in the same proportion as the vote of all other shareholders of such issuer; or (vi) the Adviser may vote proxies where the subadviser has a direct conflict of interest. The Policy requires each Adviser/subadviser that is a voting delegate to notify the Chief Compliance Officer of the Fund (or, in the case of a subadviser, the Chief Compliance Officer of the Adviser) of any actual or potential conflict of interest that is identified, and provide a recommended course of action for protecting the best interests of the affected fund’s shareholders. No Adviser/subadviser or other voting delegate may waive any conflict of interest or vote any conflicted proxies without the prior written approval of the Board (or the Executive Committee thereof) or the Chief Compliance Officer of the Fund.

The Policy further imposes certain record-keeping and reporting requirements on each Adviser/subadviser or other voting delegate.

Information regarding how the funds voted proxies relating to portfolio securities during the most recent 12-month period ended September 30 will be available, no later than August 31 of each year, free of charge by calling, toll-free, 866.270.7788, or on the SEC’s Web site at www.sec.gov.

During the period of the report, any proxies for the Fund were handled by the Fund’s subadviser, Stone Harbor Investment Partners, a division of Virtus Fixed Income Advisers, LLC (“Stone Harbor”). Following is a summary of Stone Harbor’s proxy voting policies.

In voting proxies, Stone Harbor is responsible for making investment decisions that seek to add value to its client assets and that are in the best interest of its clients. Stone Harbor has adopted proxy voting policies, general guidelines and procedures. As an adviser that primarily invests in fixed-income securities, Stone Harbor does not frequently have to vote proxies on behalf of its clients. In voting proxies, Stone Harbor is guided by general fiduciary principles. Stone Harbor’s goal is to act prudently, solely in the best interest of the beneficial owners of the accounts it manages. Stone Harbor attempts to consider all factors of its vote that could affect the value of the investment and will vote proxies in the manner that it believes will be consistent with efforts to maximize such value.

It is anticipated that Stone Harbor will generally follow its proxy voting general guidelines. If deemed to be in the best interests of a client, a portfolio manager may override the general guidelines without consultation with Stone Harbor’s Compliance & Risk Committee, unless the situation involves a conflict of interest. All overrides are subject to review by the Stone Harbor Compliance & Risk Committee.

In voting client proxies, Stone Harbor may encounter various potential conflicts of interest, such as when voting proxies pertaining to existing clients, potential clients, existing vendors, or lenders. In any case involving a potential or known conflict of interest, Stone Harbor personnel will consult with the Stone Harbor Compliance & Risk Committee in an attempt to resolve an actual or potential conflict. In addition, the Stone Harbor Compliance & Risk Committee reviews the proxy voting guidelines and portfolio manager overrides on at least an annual basis.

A complete copy of Stone Harbor’s current Proxy Voting Policies, Procedures and Guidelines may be obtained by sending a written request to Stone Harbor Investment Partners, LLC, Attn: Compliance, 31 West 52nd Street, 16th Floor, New York, New York 10019.

Peter J. Wilby, CFA. Mr. Wilby is the co-chief investment officer of SHIP strategies and co-founder of Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners (“Virtus”).

Prior to founding Stone Harbor in 2006, Mr. Wilby was a chief investment officer of North American Fixed Income at Citigroup Asset Management, as well as a member of Citigroup Asset Management’s executive committee. Additionally, he served as senior portfolio manager responsible for directing investment policy and strategy for all emerging markets debt and high yield portfolios. Before joining Citigroup, Mr. Wilby was the head of fixed income, a senior portfolio manager for emerging markets debt and high yield, and a member of the investment policy committee at Salomon Brothers Asset Management. Earlier in his career, Mr. Wilby was a fixed income portfolio manager specializing in high yield debt securities at Prudential Investment Co., and also held the role of director of the credit research unit, responsible for all corporate and sovereign credit research. He began his career at Deloitte, Haskin & Sells where he served in the Audit and Tax Department.

Mr. Wilby earned a B.B.A. and an M.B.A. in accounting from Pace University. He is a Chartered Financial Analyst^® (CFA^®) charterholder and a member of the CFA Institute and the CFA Society New York. Mr. Wilby is a certified public accountant. He began working in the investment industry in 1980.

James E. Craige, CFA. Mr. Craige is a co-chief investment officer, head of emerging markets, and co-founder of Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners. In this role. Mr. Craige heads a team that manages emerging markets and global high yield portfolios for institutions including public and private pension plans, sovereign wealth funds, and insurance companies globally.

Prior to helping found Stone Harbor in 2006, Mr. Craige was a managing director and senior portfolio manager for emerging markets debt, and a member of the investment policy committee at Citigroup Asset Management. He held similar positions at Salomon Brothers, which he joined in 1992, prior to it being purchased by Citigroup in 1998. He began his career as a fixed income trading associate at Lehman Brothers in 1989.

Mr. Craige earned a B.S. in finance from the University of Vermont and serves on the Board of Advisors for the Grossman School of Business. He is a Chartered Financial Analyst^® (CFA^®) charterholder and member of the CFA Institute and the CFA Society New York. He began working in the investment industry in 1988.

Kumaran Damodaran, PhD. Mr. Damodaran is a portfolio manager for emerging markets debt, global sovereign, and asset allocation at Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners.

Prior to joining Stone Harbor in 2015, Mr. Damodaran was the lead emerging markets macro portfolio manager at GLG Partners in London. Previously, he was an executive vice president and emerging markets portfolio manager at PIMCO in Newport Beach, California. Before joining PIMCO, Mr. Damodaran was a senior vice president and trader in Latin American local market rates at Lehman Brothers in New York. Earlier in his career, he served as a director at Credit Suisse where he held various positions in emerging markets credit, rates, and currency derivatives trading in both London and New York.

Mr. Damodaran earned a Ph.D. in theoretical physics from Cambridge University as a Marshall Scholar and National Science Foundation graduate fellow. He earned an A.B. in physics with a certificate in applied and computational mathematics from Princeton University. He began working in the investment industry in 2000.

Stuart Sclater-Booth. Mr. Sclater-Booth is a portfolio manager for emerging markets debt, global sovereign, and asset allocation at Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners.

Prior to joining Stone Harbor in 2014, Mr. Sclater-Booth was a managing director / head of emerging markets desk strategy at Goldman Sachs. Before joining Goldman Sachs, he served as executive director / global head of emerging markets macro strategy at J.P. Morgan Chase Securities. There, he held a series of roles, including executive director of emerging markets proprietary trading and vice president / head of trade strategy. Earlier in his career, Mr. Sclater-Booth was a research assistant in the U.S. macro research department at PaineWebber and an assistant economist in the domestic research department at the Federal Reserve Bank of New York.

Mr. Sclater-Booth earned a B.A. in economics from Vassar College and an M.A. in economics from Boston University. He began working in the investment industry in 1992.

David A. Oliver, CFA. Mr. Oliver is a portfolio manager for emerging markets debt, global sovereign at Stone Harbor Investment Partners, an affiliated manager of Virtus Investment Partners.

Prior to joining Stone Harbor in 2008, Mr. Oliver was a managing director for sales and trading in emerging markets debt at Citigroup Global Markets.

Mr. Oliver earned a B.A. from Northwestern University, an M.A from the University of Delaware, and an M.B.A. from the Tuck School of Business at Dartmouth College. He is a Chartered Financial Analyst^® (CFA^®) charterholder and a member of the CFA Institute and the CFA Society New York. He began working in the investment industry in 1986.

There may be certain inherent conflicts of interest that arise in connection with the portfolio managers’ management of the Fund’s investments and the investments of any other accounts they manage. Such conflicts could include the aggregation of orders for all accounts managed by a particular portfolio manager, the allocation of purchases across all such accounts, the allocation of IPOs and any soft dollar arrangements that the adviser/subadviser may have in place that could benefit the Fund and/or such other accounts. The Board of Trustees has adopted policies and procedures designed to address any such conflicts of interest to ensure that all transactions are executed in the best interest of the Fund’s shareholders. Each adviser/subadviser is required to certify its compliance with these procedures on a quarterly basis. There have been no material compliance issues with respect to any of these policies and procedures during the Fund’s most recent fiscal year. Additionally, there are no material conflicts of interest between the investment strategy of the Fund and the investment strategy of other accounts managed by portfolio managers since the portfolio managers generally manage funds and other accounts having similar investment strategies.

The following table provides information as of November 30, 2023, regarding any other accounts managed by the portfolio managers and portfolio management team members for the Fund. As noted in the table, the portfolio managers managing the Fund may also manage or be members of management teams for other mutual funds within the Virtus Fund complex or other similar accounts.

Virtus, along with certain of its affiliated investment management firms, including Stone Harbor Investment Partners, a division of Virtus Fixed Income Advisers, LLC (collectively, “Virtus”), believes that the firm’s compensation program is adequate and competitive to attract and retain high-caliber investment professionals. Investment professionals at Virtus receive a competitive

base salary, an incentive bonus opportunity, and a benefits package. Certain professionals who supervise and manage others also participate in a management incentive program reflecting their personal contribution and team performance. Certain key individuals also have the opportunity to take advantage of a long-term incentive compensation program, including potential awards of Virtus restricted stock units (“RSUs”) with multi-year vesting, subject to Virtus board of directors’ approval.

Following is a more detailed description of the compensation structure:

While portfolio managers compensation contains a performance component, this component is adjusted to reward investment personnel for managing within the stated framework and for not taking unnecessary risk. This approach helps ensure that investment management personnel remain focused on managing and acquiring securities that correspond to a fund’s mandate and risk profile and are discouraged from taking on more risk and unnecessary exposure to chase performance for personal gain. Virtus believes it has appropriate controls in place to handle any potential conflicts that may result from a substantial portion of portfolio manager compensation being tied to performance.

For the most recently completed fiscal year ended November 30, 2023, beneficial ownership of shares of the Fund by Messrs. Wilby, Craige, Damodaran, Oliver, Perry, and Sclater-Booth, are as follows. Beneficial ownership was determined in accordance with rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (17 CFR 240.161-1(a)(2)).

Not applicable.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Not applicable.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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.