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 06103-2608
(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: May 31, 2023
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
(a) The Report to Shareholders is attached herewith.
SEMIANNUAL REPORT
May 31, 2023
Virtus Global Multi-Sector Income Fund
Not FDIC Insured • No Bank Guarantee • May Lose
Value
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 semiannual
report, which reviews the performance of the Virtus Global Multi-Sector Income Fund for the six months ended May 31, 2023.
This
report contains commentary from the portfolio management team at Newfleet Asset Management about the financial markets and the performance of the Fund’s investments.
During
the fiscal six-month period, the market made an initial recovery from the volatility that characterized much of 2022. But several bank failures in March, as well as contentious debt ceiling negotiations in the U.S., led to renewed volatility. For
the six months ended May 31, 2023, the Fund’s net asset value (“NAV”) returned 2.86%, including $0.48 in reinvested distributions, and its market price returned -1.54%. For the same period, the Fund’s benchmark, the Bloomberg
Global Aggregate Bond Index, returned 1.99%.
While
markets may be unpredictable in the short term, we believe most investors are best served by focusing on the long term. Please call our customer service team at 866-270-7788 if you have questions about your account or require assistance.
Sincerely,
George R.
Aylward
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
July 2023
President, Chief Executive Officer, and Trustee
Virtus Global Multi-Sector Income Fund
July 2023
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)
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
May 31, 2023
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 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 May 31, 2023, the Fund’s leverage consisted of $45.4 million of borrowings made pursuant to a line of credit, which represented approximately 31% of the
Fund’s total assets.
Manager Comments –
Newfleet Asset Management (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
six months ended May 31, 2023.
How did the markets perform
during the Fund’s fiscal six-month period ended May 31, 2023?
So far, 2023 has been a year of transition.
Global central banks seemed to be transitioning from tightening monetary policy to pausing and assessing the tightening already in the system. China was well on its way to transitioning from its strict zero-COVID policy toward greater normalcy. The
global economy was transitioning toward a slower growth trajectory, while investors expected some major economies to transition to a mild recession. The world continued to hope for a peaceful transition in Eastern Europe as well. During most of the
first quarter of 2023, financial markets behaved as if most of these transitions would be orderly, or perhaps even avoided in some cases. March proved to disrupt that narrative, however, as the rapid failures of three regional banks in the U.S. and
the combination of a distressed Credit Suisse with UBS caused an increase in volatility and left investor confidence shaken. Policymakers responded forcefully and rapidly, but the economic impact remained unclear. During the middle of the second
quarter of 2023, the market turned its focus to the looming debt ceiling issue and negotiations in Washington.
This backdrop provided challenges for the
central bankers who were tasked with returning inflation to target while maintaining financial stability. During the reporting period, policymakers continued to tighten monetary policy, with both the Federal Reserve (the Fed) and the European
Central Bank (ECB) raising interest rates into the second quarter of 2023. Fed and ECB members sought to separate the inflation fight from issues affecting stability through their rhetoric, and by introducing new programs to counter banking sector
concerns while using the interest rate tool to combat inflation.
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)
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
May 31, 2023
Despite all the volatility during the period,
financial markets demonstrated resilience, with most risk assets posting positive total returns for the six months. High yield bank loans, asset-backed securities, and corporate high yield securities generally outperformed on a total return basis,
with emerging markets high yield posting the largest underperformance during the period. The inversion of the U.S. Treasury yield curve became more pronounced as the curve shifted higher on maturities of less than one year due to traders’
changing views about the monetary policy path and the looming deadline for an extension of the debt ceiling to avoid a U.S. default. An inverted yield curve occurs when the yields on longer-term investments drop below the yields on shorter-term
investments with the same risk profile. During the six-month period, the yield on the one-month T-bill increased 1.23%, the yield on the one-year Treasury increased 0.46%, the yield on the five-year Treasury increased by 0.02%, the 10-year Treasury
yield increased by 0.04%, and the 30-year Treasury yield moved 0.12% higher.
What factors affected the Fund’s performance during the
fiscal six-month period?
For the fiscal
six months ended May 31, 2023, the Fund’s net asset value (“NAV”) returned 2.86%. The Bloomberg Global Aggregate Bond Index, which serves as the Fund’s benchmark, returned 1.99%.
The Fund’s allocations to corporate
high quality, corporate high yield, high yield bank loans, and asset-backed securities had a positive impact on performance. The allocation to non-agency residential mortgages over agency mortgages also positively impacted performance for the
six-month period.
The Fund’s
underweight to U.S. Treasury securities had a positive impact during the period.
The Fund’s allocation to emerging
markets high yield and its underweight to non-U.S.-dollar securities were detractors during the period.
The Fund has a practice of seeking to
maintain a specified level of monthly distributions to shareholders, which may be changed at any time. As a result of this practice, the Fund may pay distributions in excess of the Fund’s taxable net investment income and net realized gains.
During the most recent fiscal period, the practice did not have a material impact on the Fund’s investment strategy.
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)
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
May 31, 2023
Risk Considerations
Credit & Interest: Debt instruments are subject to various risks, including credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt instruments may rise or fall in
response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Management:
The Fund is subject to management risk because it is an actively managed investment portfolio. Judgments by the Fund’s subadviser about the attractiveness and potential appreciation of an investment may prove to be inaccurate and may not
produce the desired results.
Foreign & Emerging Markets: Investing in foreign securities, especially in emerging markets, subjects the Fund to additional risks such as increased volatility, currency fluctuations, less liquidity, and political, regulatory, economic, and market
risk.
Sanctions: The imposition of sanctions and other similar measures could cause a decline in the value and/or liquidity of securities issued by or tied to the sanctioned country and increase market volatility and disruption in a
sanctioned country and throughout the world. Sanctions and other similar measures could limit or prevent the Fund from buying and selling securities (in the sanctioned country and other markets), significantly delay or prevent the settlement
of transactions, and negatively impact the Fund’s liquidity and performance.
High Yield Fixed Income Securities: There is a greater risk of issuer default, less liquidity, and increased price volatility related to high yield securities than investment grade securities.
Asset-Backed and Mortgage-Backed Securities: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the non-repayment of underlying collateral,
including losses to the Fund.
Leveraged Loans: Leveraged loans may be unsecured or not fully collateralized, may be subject to restrictions on resale, may be less liquid and may trade infrequently on the secondary market. Leveraged loans settle on a delayed basis;
thus, sale proceeds may not be available to meet redemptions for a substantial period of time after the sale of the loan.
Leverage:
When the Fund leverages it portfolio, the Fund may be less liquid and/or may liquidate positions at an unfavorable time, and the value of the Fund’s shares will be more volatile and sensitive to market movements.
Market Volatility: The value of the securities in the Fund may go up or down in response to the prospects of individual companies and/or general economic conditions. Price changes may be short- or long-term. Local, regional or global
events such as war or military conflict (e.g., Russia’s invasion of Ukraine), acts of terrorism, the spread of infectious illness (e.g., COVID-19 pandemic) or other public health issues, recessions, or other events could have a significant
impact on the Fund and its investments, including hampering the ability of the Fund’s manager(s) to invest the Fund’s assets as intended.
Closed-End Funds: 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.
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)
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
May 31, 2023
No
Guarantee: There is no guarantee that the Fund will meet its objective.
For information regarding the indexes and certain key
investment terms, see Key Investment Terms starting on page 7.
5
GLOBAL MULTI-SECTOR INCOME
FUND
PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
May 31, 2023
The
following tables present the portfolio holdings within certain
sectors
or countries as a percentage of total investments at May 31, 2023.
6
GLOBAL MULTI-SECTOR INCOME
FUND
KEY INVESTMENT TERMS (Unaudited)
May 31, 2023
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.
European
Central Bank (“ECB”)
The ECB is responsible
for conducting monetary policy for the Euro zone. The ECB was established as the core of the Eurosystem and the European System of Central Banks (“ESCB”). The ESCB comprises the ECB and the National Central Banks of all 17 European Union
Member States whether or not they have adopted the Euro.
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.
Risk Assets
Risk assets are those that tend to demonstrate price
volatility, such as equities, high yield bonds, currencies, and commodities.
Secured Overnight Financing Rate (“SOFR”)
A broad measure of the cost of borrowing cash overnight
collateralized by U.S. Treasury securities.
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 (Unaudited)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
8
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
9
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to
Financial Statements
10
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
11
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
12
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
13
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
14
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
15
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
16
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
17
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
18
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
19
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
20
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
21
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
See Notes to Financial Statements
22
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
For information regarding the abbreviations,
see thes Key Investment Terms starting on page 7.
See Notes to Financial Statements
23
Global Multi-Sector Income
Fund
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
May 31, 2023
($ reported in
thousands)
The following table summarizes the value of the
Fund’s investments as of May 31, 2023, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total
Value at May 31, 2023 |
Level
1 Quoted Prices |
Level
2 Significant Observable Inputs |
Level
3 Significant Unobservable Inputs | ||||
| Assets: | |||||||
| Debt Instruments: | |||||||
| Asset-Backed Securities | $ 14,367 | $ — | $ 14,367 | $— | |||
| Corporate Bonds and Notes | 68,064 | — | 68,063 | 1 | |||
| Foreign Government Securities | 27,420 | — | 27,420 | — | |||
| Leveraged Loans | 11,906 | — | 11,906 | — | |||
| Mortgage-Backed Securities | 9,686 | — | 9,686 | — | |||
| Municipal Bonds | 2,222 | — | 2,222 | — | |||
| U.S. Government Securities | 6,288 | — | 6,288 | — | |||
| Equity Securities: | |||||||
| Preferred Stocks | 2,235 | 1,058 | 1,177 | — | |||
| Common Stocks | 91 | — | 77 | 14 | |||
| Total Investments | $142,279 | $1,058 | $141,206 | $15 |
Security held by the Fund
with an end of period value of $77 was transferred from Level 3 to Level 2 due to an increase in trading activities during the period.
Some of the Fund’s investments that were
categorized as Level 3 may have been valued utilizing third party pricing information without adjustment. If applicable, such valuations are based on unobservable inputs. A significant change in third party information could result in a
significantly lower or higher value of Level 3 investments.
Management has determined that the amount of Level 3
securities compared to total net assets is not material; therefore, the roll-forward of Level 3 securities and assumptions are not shown for the period ended
May 31, 2023.
May 31, 2023.
See Notes to
Financial Statements
24
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
May 31, 2023
May 31, 2023
(Reported in thousands except shares and per share amounts)
| Assets | |
|
Investment in securities at value (Identified cost
$160,095) |
$ 142,279 |
|
Cash
|
1,189 |
| Receivables | |
|
Investment securities sold
|
223 |
|
Dividends and
interest |
1,612 |
|
Prepaid Trustees’
retainer |
— (a) |
|
Prepaid expenses and other assets (Note
3) |
42 |
|
Total
assets |
145,345 |
| Liabilities | |
|
Borrowings (Note
7) |
45,400 |
| Payables | |
|
Investment securities
purchased |
1,411 |
|
Interest on borrowings (Note
7) |
461 |
|
Investment advisory
fees |
116 |
|
Trustee deferred compensation plan (Note
3) |
35 |
|
Professional fees
|
25 |
|
Administration and accounting
fees |
14 |
|
Other accrued
expenses |
65 |
|
Total
liabilities |
47,527 |
|
Net
Assets |
$ 97,818 |
| Net Assets Consist of: | |
|
Capital paid on shares of beneficial interest (no par value, unlimited
authorization) |
$ 149,325 |
|
Total distributable earnings (accumulated
losses) |
(51,507) |
|
Net
Assets |
$ 97,818 |
|
Common Shares
Outstanding |
11,313,094 |
|
Net Asset Value Per
Share(b) |
$ 8.65 |
| (a) | Amount is less than $500 (not in thousands). |
| (b) | Net Asset Value Per Share is calculated using unrounded net assets. |
See Notes to Financial Statements
25
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED May 31, 2023
SIX MONTHS ENDED May 31, 2023
($ reported in thousands)
| Investment Income | |
|
Interest
|
$ 4,211 |
|
Dividends
|
89 |
|
Total investment
income |
4,300 |
| Expenses | |
|
Investment advisory
fees |
693 |
|
Administration and accounting
fees |
82 |
|
Professional fees
|
33 |
|
Printing fees and expenses
|
31 |
|
Trustees’ fees and
expenses |
13 |
|
Transfer agent fees and
expenses |
6 |
|
Custodian fees
|
3 |
|
Miscellaneous
expenses |
21 |
|
Total expenses before interest
expense |
882 |
|
Interest expense on borrowings (Note
7) |
1,287 |
|
Total expenses after interest
expense |
2,169 |
|
Net investment income
(loss) |
2,131 |
| Net Realized and Unrealized Gain (Loss) on Investments | |
| Net realized gain (loss) from: | |
|
Investments |
(3,190) |
| Net change in unrealized appreciation (depreciation) on: | |
|
Investments |
3,143 |
|
Net realized and unrealized gain (loss) on
investments |
(47) |
|
Net increase (decrease) in net assets resulting from
operations |
$ 2,084 |
See Notes to Financial Statements
26
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in
thousands)
| Six
Months Ended May 31, 2023 (Unaudited) |
Year
Ended November 30, 2022 | ||
| Increase
(Decrease) In Net Assets From Operations |
|||
|
Net investment income
(loss) |
$ 2,131 | $ 5,231 | |
|
Net realized gain
(loss) |
(3,190) | (6,184) | |
|
Net change in unrealized appreciation
(depreciation) |
3,143 | (19,080) | |
|
Increase (decrease) in net assets resulting from
operations |
2,084 | (20,033) | |
| From Dividends and Distributions to Shareholders | |||
|
Net investment income and net realized
gains |
(5,430) (1) | (5,220) | |
|
Return of
capital |
— | (5,641) | |
|
Dividends and Distributions to
Shareholders |
(5,430) | (10,861) | |
|
Net increase (decrease) in net
assets |
(3,346) | (30,894) | |
| Net Assets | |||
|
Beginning of
period |
101,164 | 132,058 | |
|
End of
period |
$ 97,818 | $101,164 |
| (1) | Please note that the tax status of the Fund’s distributions is determined at the end of the taxable year. See Notes to Financial Statements. |
See Notes to Financial Statements
27
GLOBAL MULTI-SECTOR INCOME
FUND
STATEMENT OF CASH FLOWS (Unaudited)
SIX MONTHS ENDED May 31,
2023
($ reported in thousands)
| Increase (Decrease) in cash | |
| Cash flows provided by (used for) operating activities: | |
|
Net increase (decrease) in net assets resulting from operations
|
$ 2,084 |
| 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
|
44,510 |
|
(Increase) Decrease in investment securities sold receivable
|
788 |
|
Purchases of long-term investments
|
(44,053) |
|
Increase (Decrease) in investment securities purchased payable
|
(359) |
|
Net (purchases) or sales of short-term
investments |
3,439 |
|
Net change in unrealized (appreciation)/depreciation on investments
|
(3,143) |
|
Net realized (gain)/loss on investments
|
3,190 |
|
Amortization of premium and accretion of discounts on investments
|
(88) |
|
(Increase) Decrease in dividends and interest receivable
|
(3) |
|
(Increase) Decrease in prepaid expenses and other
assets |
(7) |
|
(Increase) Decrease in prepaid Trustees’ retainer
|
1 |
|
Increase (Decrease) in interest payable on
borrowings |
109 |
|
Increase (Decrease) in affiliated expenses
payable |
4 |
|
Increase (Decrease) in non-affiliated expenses
payable |
41 |
|
Cash provided by (used for) operating
activities |
6,513 |
| Cash provided by (used for) financing activities: | |
|
Cash distributions paid to shareholders
|
(5,430) |
|
Cash provided by (used for) financing
activities |
(5,430) |
|
Net increase (decrease) in
cash |
1,083 |
|
Cash and foreign currency at beginning of
period |
106 |
|
Cash and foreign currency at end of
period |
$ 1,189 |
| Supplemental cash flow information: | |
|
Cash paid during the period for interest expense on
borrowings |
$ 1,178 |
See Notes to Financial Statements
28
GLOBAL MULTI-SECTOR INCOME
FUND
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
| Six
Months Ended May 31, 2023 (Unaudited) |
Year Ended November 30, | ||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | |||||||
| PER SHARE DATA: | |||||||||||
|
Net asset value, beginning of period
|
$ 8.94 | $ 11.67 | $ 12.55 | $ 13.16 | $ 13.30 | $ 17.06 | |||||
| Income (loss) from investment operations: | |||||||||||
|
Net investment income (loss)(1)
|
0.19 | 0.46 | 0.52 | 0.55 | 0.58 | 0.72 | |||||
|
Net realized and unrealized gain (loss)
|
— (2) | (2.23) | (0.32) | 0.20 | 0.79 | (2.79) | |||||
|
Payment from affiliate
|
— | — | — | — | — (2) | — | |||||
|
Total from investment operations
|
0.19 | (1.77) | 0.20 | 0.75 | 1.37 | (2.07) | |||||
| Dividends and Distributions to Shareholders: | |||||||||||
|
Net investment income
|
(0.48) | (0.46) | (0.52) | (0.51) | (0.49) | (0.59) | |||||
|
Return of capital
|
— | (0.50) | (0.56) | (0.85) | (1.02) | (1.10) | |||||
|
Total dividends and distributions to shareholders
|
(0.48) | (0.96) | (1.08) | (1.36) | (1.51) | (1.69) | |||||
|
Net asset value, end of period
|
$ 8.65 | $ 8.94 | $ 11.67 | $ 12.55 | $ 13.16 | $ 13.30 | |||||
|
Market value, end of period(3)
|
$ 7.52 | $ 8.12 | $ 11.56 | $ 11.69 | $ 12.54 | $ 11.75 | |||||
|
Total return, net asset value(4), (5)
|
2.86% | (14.70)% | 1.76% | 7.70% | 11.82% | (12.24)% | |||||
|
Total return, market value(4), (5)
|
(1.54)% | (21.78)% | 8.22% | 5.28% | 20.61% | (27.29)% | |||||
| RATIOS/SUPPLEMENTAL DATA: | |||||||||||
|
Ratio of total expenses after interest expense to average net assets(6), (7)
|
4.31% | 2.76% | 2.14% | 2.40% | 3.13% | 2.96% | |||||
|
Ratio of net investment income (loss) to average net assets(6)
|
4.24% | 4.62% | 4.28% | 4.51% | 4.39% | 4.86% | |||||
|
Portfolio turnover rate(4)
|
31% | 44% | 54% | 75% | 62% | 58% | |||||
|
Net assets, end of period (000’s)
|
$97,818 | $101,164 | $132,058 | $141,880 | $148,730 | $150,335 | |||||
|
Borrowings, end of period (000’s)
|
$45,400 | $ 45,400 | $ 52,500 | $ 52,500 | $ 57,000 | $ 59,000 | |||||
|
Asset coverage, per $1,000 principal amount of borrowings(8)
|
$ 3,155 | $ 3,228 | $ 3,515 | $ 3,702 | $ 3,609 | $ 3,548 | |||||
| (1) | Calculated using average shares outstanding. |
| (2) | Amount is less than $0.005 per share. |
| (3) | Closing Price – New York Stock Exchange. |
| (4) | Not annualized for periods less than one year. |
| (5) | 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. |
| (6) | Annualized for periods less than one year. |
| (7) | Ratio of total expenses, before interest expense on borrowings, was 1.75% for the six months ended May 31, 2023; 1.74%, 1.74%, 1.74%, 1.86% and 1.83% for the years ended November 30, 2022, 2021, 2020, 2019 and 2018, respectively. |
| (8) | 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
29
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited)
May 31, 2023
May 31, 2023
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. The Fund’s investment objective is outlined in the Manager’s Discussion of Fund Performance pages.
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’s Board of Trustees has designated the Investment Adviser as the valuation designee to perform fair valuations pursuant to Rule 2a-5 under the Investment Company Act of 1940. The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Fund’s policy is to recognize transfers into or out of Level 3 at the end of the reporting period. |
•
Level 1 – quoted prices in active markets for identical securities (security types generally include listed equities).
•
Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
•
Level 3 – prices determined using significant unobservable inputs (including the Investment Adviser’s Valuation Committee’s own assumptions in determining the fair value of investments).
A description of the valuation techniques
applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities are valued at the
official closing price (typically last sale) on the exchange on which the securities are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Illiquid, restricted equity
securities and illiquid private placements are internally fair valued by the Investment Adviser’s Valuation Committee, and are generally categorized as Level 3 in the hierarchy.
30
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
Certain non-U.S. securities may be fair
valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (“NAV”) at the close of regular trading on the New York Stock
Exchange (“NYSE”) (generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases, the Fund fair values non-U.S. securities using an independent pricing service which considers the
correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, ETFs, and certain indexes, as well as prices for similar securities.
Such fair valuations are categorized as Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent basis.
Debt instruments, including convertible
bonds, and restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that
considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, activity of the underlying equities, and current day trade information, as well as dealer supplied prices.
These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments, such as mortgage-backed and asset-backed securities may also incorporate collateral analysis and utilize cash flow models for valuation and are
generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are
generally categorized as Level 2 in the hierarchy. Debt instruments that are internally fair valued by the Investment Adviser’s Valuation Committee are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options, that
are actively traded are valued at the last posted settlement price from the exchange where they are principally traded and are categorized as Level 1 in the hierarchy. Over-the-counter 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 and capital gain distributions are recognized on the ex-dividend date or, in the case of certain |
31
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
| foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Premiums on callable debt instruments are amortized to interest income to the earliest call date using the effective interest method. | |
| Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds. | |
| C. | Income Taxes |
| It is the Fund’s intention to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and to distribute substantially all of its taxable income and capital gains, if any, to its shareholders. Therefore, no provision for federal income taxes or excise taxes has been made. | |
| The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests. | |
| Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Fund’s U.S. federal income tax return is generally subject to examination by the Internal Revenue Service for a period of three years after it is filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction. | |
| D. | Distributions to Shareholders |
| The Fund declares distributions on a monthly basis. Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. | |
| Distributions may represent earnings from net investment income, realized capital gains, or, if necessary, return of capital. | |
| E. | Foreign Currency Transactions |
| Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a 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. For fixed income instruments, the Fund bifurcates that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held and such fluctuations are included with the net realized and unrealized gain or loss on foreign currency transactions. For equity securities, 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 and such fluctuations are included with the net realized and unrealized gain or loss on investments. |
32
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
| 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 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, SOFR, the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a leveraged loan is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may |
33
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
| receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a leveraged loan. Prepayment penalty fees are received upon the prepayment of a leveraged loan by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid. | |
| The Fund may invest in both secured loans and “covenant lite” loans which have few or no financial maintenance covenants that would require a borrower to maintain certain financial metrics. The lack of financial maintenance covenants in covenant lite loans increases the risk that the Fund will experience difficulty or delays in enforcing its rights on its holdings of such loans, which may result in losses, especially during a downturn in the credit cycle. | |
| I. | Expenses |
| Expenses incurred together by the Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expenses to the Fund and each such other fund, or an alternative allocation method, can be more appropriately used. | |
| In addition to the net annual operating expenses that the Fund bears directly, the shareholders of the Fund indirectly bear the pro-rata expenses of any underlying mutual funds in which the Fund invests. | |
| J. | Cash and Cash Equivalents |
| Cash and cash equivalents include deposits held at financial institutions, 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. | Investment 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, a division of Virtus Fixed Income Advisers, LLC, an indirect, wholly-owned subsidiary of Virtus, is the Fund’s subadviser. 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, an indirect, wholly-owned subsidiary of Virtus, serves as administrator to the Fund. For the services provided by the administrator under the |
34
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
| 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 six months ended May 31, 2023, the Fund incurred administration fees totaling $73 which are included in the Statement of Operations within the line item “Administration and accounting fees.” | |
| D. | Trustees’ Fees |
| For the six months ended May 31, 2023, the Fund incurred Trustees’ fees totaling $12, which are included in the Statement of Operations within the line item “Trustees’ fees and expenses.” | |
| E. | Investments with Affiliates |
| The Fund is permitted to purchase assets from or sell assets to certain related affiliates under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of assets by the Fund from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers comply with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. | |
| During the six months ended May 31, 2023, the Fund did not engage in any transactions pursuant to Rule 17a-7 under the 1940 Act. | |
| F. | Trustees Deferred Compensation Plan |
| The Fund provides a deferred compensation plan for its Trustees who receive compensation from the Fund. Under the deferred compensation plan, Trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund, and then, to the extent permitted by the 1940 Act, in turn, may be invested in the shares of affiliated or unaffiliated mutual funds selected by the participating Trustees. Investments in such instruments are included in “Prepaid expenses and other assets” in the Statement of Assets and Liabilities at May 31, 2023. |
Note 4. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding
U.S. government and agency securities, and short-term securities) during the six months ended May 31, 2023, were as follows:
| Purchases | Sales | |
| $33,762 | $35,587 |
Purchases and
sales of long-term U.S. government and agency securities during the
six months ended May 31, 2023, were as follows:
six months ended May 31, 2023, were as follows:
| Purchases | Sales | |
| $10,291 | $8,923 |
35
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
Note 5. Federal Income Tax Information
($ reported in thousands)
At May 31, 2023, 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) | ||||
| $160,208 | $515 | $(18,444) | $(17,929) |
The Fund has
capital loss carryovers available to offset future realized capital gains, if any, to the extent permitted by the Code. Net capital losses are carried forward without expiration and generally retain their short-term and/or long-term tax character,
as applicable. For the fiscal year ended November 30, 2022, the Fund’s capital loss carryovers are as follows:
| Short-Term | Long-Term | ||
| $9,085 | $17,364 | ||
Note 6. Credit and Market
Risk and Asset Concentration
In July
2017, the head of the United Kingdom Financial Conduct Authority (“FCA”) announced the intention to phase out the use of LIBOR by the end of 2021. However, after subsequent announcements by the FCA, the LIBOR administrator and other
regulators, certain of the most widely used LIBORs are expected to continue until June 30, 2023. The ICE Benchmark Administration Limited, which is regulated and authorized by FCA, and the administrator of LIBOR, ceased publishing certain LIBOR
settings on December 31, 2021. On April 3, 2023, the FCA announced its decision to require LIBOR’s administrator to continue to publish the 1-month, 3-month, and 6-month U.S. dollar settings under an unrepresentative synthetic methodology
until September 30, 2024. On March 15, 2022, the Adjustable Interest Act (LIBOR) Act (the “LIBOR Act”) was enacted into law which directs the Federal Reserve Board, as a fallback mechanism, to identify benchmark rates based on SOFR that
will replace LIBOR in certain financial contracts after June 30, 2023. On December 16, 2022, the Federal Reserve adopted regulations implementing the LIBOR Act. The Fund may be exposed to financial instruments tied to LIBOR to determine payment
obligations, financing terms, hedging strategies or investment value. The 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 the effects such changes will have on the Fund, issuers of instruments in which the Fund invests, and the financial markets generally.
Local, regional or global events such as war
or military conflict, acts of terrorism, the spread of infectious illness or other public health issue, recessions, or other events could have a significant impact on the Fund and its investments, including hampering the ability of the Fund’s
portfolio manager(s) to invest the Fund’s assets as intended.
36
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
Emerging market countries typically have
economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or
deflation. Since these markets are often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may
also have policies that restrict investment by foreigners, or that prevent foreign investors from withdrawing their money at will.
Certain emerging markets may also face other
significant internal or external risks, including the risk of war and civil unrest. Each of these factors can affect the value and liquidity of the assets of the Fund. Failure to generate adequate earnings from foreign trade would make it difficult
for an emerging market country to service foreign debt. Disruptions resulting from social and political factors may cause the securities markets of emerging market countries to close. If this were to occur, the liquidity and value of the
Fund’s assets invested in corporate debt obligations of emerging market companies would decline.
The imposition of sanctions, exchange
controls (including repatriation restrictions), confiscation of assets and property, trade restrictions (including tariffs) and other government restrictions by the U.S. or other governments, or from problems in registration, settlement or custody,
may also result in losses. The type and severity of sanctions and other similar measures, including counter sanctions and other retaliatory actions, that may be imposed could vary broadly in scope, and their impact is impossible to predict. For
example, the imposition of sanctions and other similar measures could, among other things, cause a decline in the value and/or liquidity of securities issued by the sanctioned country or companies located in or economically tied to the sanctioned
country and increase market volatility and disruption in the sanctioned country and throughout the world. Sanctions and other similar measures could limit or prevent the Fund from buying and selling securities (in the sanctioned country and other
markets), significantly delay or prevent the settlement of securities transactions, and significantly impact the Fund’s liquidity and performance.
Sanctions threatened or imposed may result
in a decline in the value and liquidity of the Fund’s assets. The securities of the Fund may be deemed to have a zero value. The Fund may make investments that are illiquid or that may become less liquid in response to market developments or
adverse investor perceptions. Illiquid investments may be more difficult to value. If the Fund is forced to sell securities at an unfavorable time and/or under unfavorable conditions, such sales may adversely affect the Fund’s NAV and dilute
investors’ interests. Liquidity risk may be the result of, among other things, the reduced number and capacity of traditional market participants to make a market in fixed income securities or the lack of an active market. The potential for
liquidity risk may be magnified by a rising interest rate environment or other circumstances where investor redemptions from fixed income funds may be higher than normal, potentially causing increased supply in the market due to selling activity.
These risks may be more pronounced in connection with the Fund’s investments in securities of issuers located in emerging market countries.
For all these reasons, investments in
emerging markets may be considered speculative. To the extent that the Fund invests a significant portion of its assets in a particular emerging market, the Fund will be more vulnerable to financial, economic, political and other developments in
that country, and conditions that negatively impact that country will have a
37
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
greater impact on the Fund as compared with a fund that
does not have its holdings concentrated in a particular country.
High-yield/high-risk securities typically
entail greater price volatility and/or principal and interest rate risk. There is a greater chance that an issuer will not be able to make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield/high-risk
securities may be complex, and as a result, it may be more difficult for the Adviser and/or subadviser to accurately predict risk.
The Fund 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 $55,000 (“Commitment Amount”). Borrowings under the Agreement are collateralized by investments of the
Fund. The Agreement results in the Fund being subject to certain covenants including asset coverage and portfolio composition (among others). If the Fund fails to meet or maintain certain covenants as required under the Agreement, the Fund may be
required to repay immediately, in part or in full, the loan balance outstanding under the Agreement, necessitating the sale of securities at potentially inopportune times. Interest is charged at SOFR plus an additional percentage rate on the amount
borrowed. Commitment fees are charged on the undrawn balance. Total commitment fees accrued for the six months ended May 31, 2023 were $23 and are included in the “Interest expense on borrowings” line of the Statement of Operations. The
Agreement has a term that extends until the 179th day after the date that the lender delivers a “notice of termination” to the Fund. The Bank has the ability to
require repayment of outstanding borrowings under the Agreement upon certain circumstances such as an event of default.
For the six months ended May 31, 2023, the
average daily borrowings under the Agreement and the weighted daily average interest rate were $45,400 and 5.51%, respectively.
At May 31, 2023, the amount of outstanding
borrowings was as follows:
| Outstanding
Borrowings |
Interest
Rate | |
| $45,400 | 6.01% |
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
38
GLOBAL MULTI-SECTOR INCOME FUND
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
May 31, 2023
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 May 31, 2023, the Fund
has one class of common stock with no par value of which unlimited shares are authorized and 11,313,094 shares are outstanding.
Note 10. Restricted Securities
Restricted securities are not registered
under the Securities Act of 1933, as amended (the “1933 Act”). Generally, 144A securities are excluded from this category. The Fund will bear any costs, including those involved in registration under the 1933 Act, in connection with the
disposition of such securities. At May 31, 2023, the Fund did not hold any securities that were restricted.
Note 11. Regulatory Matters and Litigation
From time to time, the Fund, the Adviser,
the subadviser, and/or their respective affiliates may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance with, among other things, securities
laws, client investment guidelines, and laws and regulations affecting their activities. At this time, the Fund and the Adviser believe that the outcomes of such matters are not likely, either individually or in the aggregate, to be material to
these financial statements.
Note 12. Recent
Accounting Pronouncements
In March
2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in
ASU 2020-04 provide optional temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered reference rates as of the end of 2021. In March
2021, the administrator for LIBOR announced the extension of the publication of a majority of the USD LIBOR settings to June 30, 2023. On December 21, 2022, the FASB issued ASU 2022-06 to defer the sunset date of ASC 848 until December 31, 2024. ASU
2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2024. Management is currently evaluating ASU 2020-04 and ASU 2020-06, but does not believe there will be
a material impact.
Note 13. Subsequent Events
Management has evaluated the impact of all
subsequent events on the Fund through the date the financial statements were available for issuance, and has determined that there are no subsequent events requiring recognition or disclosure in these financial statements.
39
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.
40
Global Multi-Sector
Income Fund
Results of Annual Meeting of Shareholders (Unaudited)
Results of Annual Meeting of Shareholders (Unaudited)
The Annual Meeting of Shareholders
of Virtus Global Multi-Sector Income Fund was held on May 22, 2023. The meeting was held for purposes of electing four (4) nominees to the Board of Trustees. The results were as follows:
| Election of Trustees | Votes For | Votes Withheld |
| Donald C. Burke | 9,014,101.971 | 480,381.000 |
| Sarah E. Cogan | 9,090,449.971 | 404,033.000 |
| Sidney E. Harris | 9,029,214.971 | 465,268.000 |
| John R. Mallin | 9,011,111.971 | 483,371.000 |
Based on the foregoing,
Messrs. Burke, Harris and Mallin and Ms. Cogan were re-elected to the Board of Trustees. The Fund’s other Trustees who continue in office are George R. Aylward*, Deborah
A. DeCotis, F. Ford Drummond, Connie D. McDaniel, Philip R. McLoughlin, Geraldine M. McNamara, R. Keith Walton and Brian T. Zino.
*Interested Trustee
VIRTUS 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.
| (b) | Not applicable. |
Item 2. Code of Ethics.
Response not required for semi-annual report.
Item 3. Audit Committee Financial Expert.
Response not required for semi-annual report.
Item 4. Principal Accountant Fees and Services.
Response not required for semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Response not required for semi-annual report.
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. |
Response not required for semi-annual report.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
| (a) | Response not required for semi-annual report. |
| (b) | There has been no change, as of the date of this filing, in any of the portfolio managers identified in response to paragraph (a)(1) of this Item in the registrant’s most recently filed annual report on Form N-CSR. |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrant’s Board of Trustees 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 period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not applicable.
Item 13. Exhibits.
|
|
(a)(1) |
Not applicable. | ||
| (a)(2) |
||||
| (a)(2)(1) Not applicable. | ||||
| (a)(2)(2) Not applicable. | ||||
| (b) |
||||
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 8/4/23 |
||||||
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 8/4/23 |
||||||
| By (Signature and Title)* /s/ W. Patrick Bradley |
||||||
| W. Patrick Bradley, Executive Vice President, |
||||||
| Chief Financial Officer, and Treasurer |
||||||
| (principal financial officer) |
||||||
|
Date 8/4/23 |
||||||
* Print the name and title of each signing officer under his or her signature.