QUARTERLY REPORT
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless specifically requested from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
You may elect at any time to receive not only shareholder reports but also certain other communications from the Fund electronically, or you may elect to receive all future shareholder reports in paper free of charge to you. (Please note that the Fund will incur additional expenses when printing and mailing any paper shareholder reports, and Fund expenses pass indirectly to all shareholders.) If you own your shares directly with the Fund, you may make such elections by calling the Fund at 1-866-270-7788 or, with respect to requesting electronic delivery, by visiting www.virtus.com. If you own your shares through a financial intermediary, please contact your financial intermediary to make your request and to determine whether your election will apply to all funds in which you own shares through that intermediary.
| Not FDIC Insured No Bank Guarantee May Lose Value |
February 28, 2019 | |
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Board of Directors (“the Board”) of Virtus Global Dividend & Income Fund Inc. (“Fund”) adopted a Managed Distribution Plan (the “Plan”) which currently provides for the Fund to make a monthly distribution of $0.113 per share. Under the terms of the Plan, the Fund seeks to maintain a consistent distribution level that may be paid in part or in full from net investment income, realized capital gains, and a return of capital, or a combination thereof.
If the Fund estimates that it has distributed more than its income and capital gains in a particular period, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution should not be confused with “yield” or “income.”
To the extent that the Fund uses capital gains and/or return of capital to supplement its investment income, you should not draw any conclusions about the Fund’s investment performance from the amount of the Fund’s distributions or from the terms of the Fund’s Managed Distribution Plan.
The amounts and sources of distributions reported in Section 19(a) notices of the Investment Company Act of 1940 are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send shareholders a Form 1099-DIV for the calendar year that tells them how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Managed Distribution Plan at any time, without prior notice to shareholders if it deems such action to be in the best interest of the Fund and its shareholders.
Information on the Fund is available through the closed-end fund section on the web at www.Virtus.com.
Section 19(a) notices are posted on the website at:
http://www.virtus.com/our-products/closed-end-fund-details/ZTR.
MESSAGE TO SHAREHOLDERS
Dear Virtus Global Dividend & Income Fund Inc. Shareholder:
Enclosed is the quarterly report for the Virtus Global Dividend & Income Fund Inc. (ZTR) for the period ended February 28, 2019.
For the three months ended February 28, 2019, the fund’s NAV increased 0.23%, including $0.339 in reinvested distributions, and its market price increased 10.21%. The fund’s NAV return during the period included a (2.06%) impact from the options overlay strategy.
Effective January 1, 2019, the equity index in the fund’s composite benchmark was changed to the MSCI World High Dividend Yield Index (net) after the former equity index, the Russell Developed Large Cap Index (net), was discontinued and no longer being calculated after December 31, 2018.
For the three months ended February 28, 2019, the fund’s composite benchmark with the new equity index, consisting of 60% MSCI World High Dividend Yield Index (net) and 40% Bloomberg Barclays U.S. Aggregate Bond Index, increased 4.70%, including reinvested dividends. Performance of the composite’s underlying indices for this period included a gain of 1.66% for the MSCI World High Dividend Yield Index (net) and a gain of 2.86% for the Bloomberg Barclays U.S. Aggregate Bond Index.
For the month of December 2018, the fund’s composite benchmark with the old equity index, consisting of 60% Russell Developed Large Cap Index (net) and 40% Bloomberg Barclays U.S. Aggregate Bond Index, returned (3.88%), including reinvested dividends. Performance of the composite’s underlying indices for this period included (7.70%) for the Russell Developed Large Cap Index (net) and a gain of 1.84% for the Bloomberg Barclays U.S. Aggregate Bond Index.
On behalf of Virtus Investment Partners and our affiliated portfolio managers, I thank you for your investment. Should you have any questions or require support, the Virtus customer service team is ready to assist at 1-866-270-7788 or through the closed-end fund section of our website, www.virtus.com.
Sincerely,
George R. Aylward
President, Chief Executive Officer and Director
Virtus Global Dividend & Income Fund Inc.
April 2019
Performance data quoted represents past results. Past performance is no guarantee of future results and current performance may be higher or lower than performance shown above. Any market index referenced herein is unmanaged; its returns do not reflect any fees, expenses, or sales charges; and is not available for direct investment.
2
MESSAGE TO SHAREHOLDERS (Continued)
Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk.
Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
Options Overlay Strategy: The options overlay strategy may not be successful in achieving its objective of increasing distributable income while limiting the risk of loss and, in periods of significant moves in the S&P 500 Index, has resulted and, in the future, may result in losses for investors.
Foreign Investing: Investing internationally involves additional risks such as currency, political, accounting, economic, and market risk.
High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
ABS/MBS: 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 repayment of underlying collateral.
Leveraged Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.
Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.
Market Price/NAV: At the time of purchase and/or sale, an investor’s shares may have a market price that is above or below the fund’s NAV, which may increase the investor’s risk of loss.
Fundamental Risk of Investing: There can be no assurance that the Fund will achieve its investment objectives. An investment in the shares of the Fund is subject to loss of principal; shares may decrease in value.
3
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
4
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
5
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
6
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
7
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
8
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
9
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
10
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
11
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
12
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
13
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
14
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
15
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
See Notes to Financial Statements
16
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
Open Purchased Options contracts as of February 28, 2019, were as follows:
| Description of Options | Number of Contracts |
Contract Notional Amount |
Strike Price(1) |
Expiration Date |
Value | |||||||||||||||
| Call Options |
||||||||||||||||||||
| S&P 500® Index |
111 | $ | 32,468 | $ | 2,925 | 3/1/19 | $ | — | ||||||||||||
| S&P 500® Index |
93 | 27,435 | 2,950 | 3/4/19 | — | |||||||||||||||
| S&P 500® Index |
102 | 30,090 | 2,950 | 3/6/19 | — | |||||||||||||||
| S&P 500® Index |
112 | 33,152 | 2,960 | 3/8/19 | — | |||||||||||||||
| S&P 500® Index |
102 | 30,345 | 2,975 | 3/11/19 | — | |||||||||||||||
| S&P 500® Index |
102 | 30,192 | 2,960 | 3/13/19 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| — | ||||||||||||||||||||
|
|
|
|||||||||||||||||||
| Put Options |
||||||||||||||||||||
| S&P 500® Index |
111 | 28,805 | 2,595 | 3/1/19 | — | |||||||||||||||
| S&P 500® Index |
93 | 24,227 | 2,605 | 3/4/19 | 2 | |||||||||||||||
| S&P 500® Index |
102 | 26,622 | 2,610 | 3/6/19 | 5 | |||||||||||||||
| S&P 500® Index |
112 | 29,400 | 2,625 | 3/8/19 | 14 | |||||||||||||||
| S&P 500® Index |
102 | 26,928 | 2,640 | 3/11/19 | 19 | |||||||||||||||
| S&P 500® Index |
102 | 26,724 | 2,620 | 3/13/19 | 25 | |||||||||||||||
|
|
|
|||||||||||||||||||
| 65 | ||||||||||||||||||||
| Total Purchased Options |
$ | 65 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
Open Written Options contracts as of February 28, 2019, were as follows:
| Description of Options | Number of Contracts |
Contract Notional Amount |
Strike Price(1) |
Expiration Date |
Value | |||||||||||||||
| Call Options |
||||||||||||||||||||
| S&P 500® Index |
111 | $ | 31,913 | $ | 2,875 | 3/1/19 | $ | — | ||||||||||||
| S&P 500® Index |
93 | 26,877 | 2,890 | 3/4/19 | — | |||||||||||||||
| S&P 500® Index |
102 | 29,529 | 2,895 | 3/6/19 | — | |||||||||||||||
| S&P 500® Index |
112 | 32,592 | 2,910 | 3/8/19 | (1 | ) | ||||||||||||||
| S&P 500® Index |
102 | 29,784 | 2,920 | 3/11/19 | — | (2) | ||||||||||||||
| S&P 500® Index |
102 | 29,631 | 2,905 | 3/13/19 | (2 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||
| (3 | ) | |||||||||||||||||||
|
|
|
|||||||||||||||||||
| Put Options |
||||||||||||||||||||
| S&P 500® Index |
111 | 29,360 | 2,645 | 3/1/19 | (1 | ) | ||||||||||||||
| S&P 500® Index |
93 | 24,785 | 2,665 | 3/4/19 | (2 | ) | ||||||||||||||
| S&P 500® Index |
102 | 27,183 | 2,665 | 3/6/19 | (9 | ) | ||||||||||||||
| S&P 500® Index |
112 | 29,960 | 2,675 | 3/8/19 | (26 | ) | ||||||||||||||
| S&P 500® Index |
102 | 27,489 | 2,695 | 3/11/19 | (43 | ) | ||||||||||||||
| S&P 500® Index |
102 | 27,285 | 2,675 | 3/13/19 | (44 | ) | ||||||||||||||
|
|
|
|||||||||||||||||||
| (125 | ) | |||||||||||||||||||
| Total Written Options |
$ | (128 | ) | |||||||||||||||||
|
|
|
|||||||||||||||||||
Footnote Legend:
| (1) | Strike price not reported in thousands. |
| (2) | Amount is less than $500. |
See Notes to Schedules of Investments
17
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
($ reported in thousands)
The following table provides a summary of inputs used to value the Fund’s investments as of February 28, 2019 (See Security Valuation Note 1A in the Notes to Schedules of Investments):
| Total Value at February 28, 2019 |
Level 1 Quoted Prices |
Level 2 Significant Observable Inputs |
||||||||||
| Debt Securities: |
||||||||||||
| Asset-Backed Securities |
$ | 12,717 | $ | — | $ | 12,717 | ||||||
| Corporate Bonds and Notes |
58,417 | — | 58,417 | |||||||||
| Foreign Government Securities |
3,171 | — | 3,171 | |||||||||
| Leveraged Loans |
7,776 | — | 7,776 | |||||||||
| Mortgage-Backed Securities |
22,184 | — | 22,184 | |||||||||
| Municipal Bonds |
5,798 | — | 5,798 | |||||||||
| U.S. Government Securities |
11,101 | — | 11,101 | |||||||||
| Equity Securities: |
||||||||||||
| Common Stocks |
201,998 | 201,998 | — | |||||||||
| Preferred Stocks |
2,851 | — | 2,851 | |||||||||
| Money Market Mutual Fund |
4,732 | 4,732 | — | |||||||||
| Purchased Options |
65 | 65 | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total Investments, before Written Options |
$ | 330,810 | $ | 206,795 | $ | 124,015 | ||||||
|
|
|
|
|
|
|
|||||||
| Liabilities: |
||||||||||||
| Written Options |
$ | (128 | ) | $ | (126 | ) | $ | (2 | ) | |||
|
|
|
|
|
|
|
|||||||
| Total Investments, net of Written Options |
$ | 330,682 | $ | 206,669 | $ | 124,013 | ||||||
|
|
|
|
|
|
|
|||||||
There were no securities valued using significant unobservable inputs (Level 3) at February 28, 2019.
There were no transfers between Level 1, Level 2 or Level 3 related to securities held at February 28, 2019.
See Notes to Schedules of Investments
18
VIRTUS GLOBAL DIVIDEND & INCOME FUND
FINANCIAL HIGHLIGHTS (Unaudited)
FEBRUARY 28, 2019
(Reported in thousands except for the per share amounts)
| Total Net Assets | Net Asset Value per share |
|||||||||||||||
| Beginning of period: November 30, 2018 |
$ | 259,013 | $ | 10.54 | ||||||||||||
| Net investment income* |
$ | 1,022 | $ | 0.04 | ||||||||||||
| Net realized and unrealized gain on investments |
(1,414 | ) | (0.05 | ) | ||||||||||||
| Dividends from net investment income and distributions from net long-term and short-term capital gains** |
(8,328 | ) | (0.34 | ) | ||||||||||||
| Capital share transactions: |
||||||||||||||||
| Issuance of common stock related to reinvestment of distributions |
170 | — | ||||||||||||||
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in net assets/net asset value |
(8,550 | ) | (0.35 | ) | ||||||||||||
|
|
|
|
|
|||||||||||||
| End of period: February 28, 2019 |
$ | 250,463 | $ | 10.19 | ||||||||||||
|
|
|
|
|
|||||||||||||
| * | Calculated using average shares outstanding. |
| ** | Please note that the tax status of our distributions is determined at the end of the taxable year. However, based on interim data as of February 28, 2019, we estimate that 12.3% of distributions will represent net investment income, and 87.7% will represent return of capital. Also refer to inside front cover for information on the Managed Distribution Plan. |
See Notes to Schedules of Investments
19
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Unaudited)
FEBRUARY 28, 2019
Note 1. Significant Accounting Policies
Virtus Global Dividend & Income Fund Inc. is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the “Act”). The Fund follows the accounting and reporting guidance of of Accounting Standards Codification Topic 946 applicable to Investment Companies.
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its Schedule of Investments and, for derivatives, included in Note 2 below. The preparation of the Schedule of Investments in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the Schedule of Investments. Actual results could differ from those estimates and those differences could be significant.
| A. | Security Valuation |
The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Fund’s policy is to recognize transfers between levels at the end of the reporting period.
| • Level 1 – | quoted prices in active markets for identical securities (security types generally include listed equities). |
| • Level 2 – | prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| • Level 3 – | prices determined using significant unobservable inputs (including the Valuation Committee’s own assumptions in determining the fair value of investments). |
A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Restricted equity securities and private placements that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Certain non-U.S. securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market or other regional and local developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that a 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 ADRs, financial futures, exchange-traded funds and certain indexes, as well as prices for similar securities. Such fair valuations are categorized as
20
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
Level 2 in the hierarchy. Because the frequency of significant events is not predictable, fair valuation of certain non-U.S. common stocks may occur on a frequent basis.
Debt securities, including restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, and current day trade information, as well as dealer-supplied prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments, such as mortgage-backed and asset-backed securities, may also incorporate collateral analysis and utilize cash flow models for valuation, and are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are generally categorized as Level 2 in the hierarchy. Debt securities that are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options, that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the-counter derivative contracts, which include forward currency contracts and equity-linked instruments, do not require material subjectivity as pricing inputs are observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in open-end mutual funds are valued at NAV. Investments in closed-end funds and ETFs are valued as of the close of regular trading on the NYSE each business day. Each is categorized as Level 1 in the hierarchy.
A summary of the inputs used to value the Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments for the Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| B. | Security Transactions and Investment Income |
Security transactions are recorded on the trade date. Realized gains and losses from sales of securities are determined on the identified cost basis. Dividend income is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method.
Any distributions from the underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
| C. | 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
21
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
accrued and the date it is paid is treated as a gain or loss on foreign currency. The Fund does not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
| D. | 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 loan agreement. 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 loans with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the leveraged loan. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan.
The Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Leveraged loans may involve foreign borrowers, and investments may be denominated in foreign currencies. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due.
The leveraged loans have floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR, the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a leveraged loan is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a leveraged loan. Prepayment penalty fees are received upon the prepayment of a Leveraged loans by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
Note 2. Derivative Financial Instruments
Disclosures about derivative instruments and hedging activities are intended to enable investors to understand how and why a Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect a Fund’s results of operations and financial position. Summarized below are such disclosures and accounting policies for each specific type of derivative instrument used by the Fund.
22
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
| Options | contracts |
($ reported in thousands)
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed-upon price. The Fund pursues an option income strategy whereby it purchases and sells out-of-the-money puts and calls, creating an options spread designed to generate a consistent level of option cash flow which should result in additional yield. The Fund is subject to equity price risk in the normal course of pursuing its investment objectives.
When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option.
Holdings of the Fund designated as collateral for outstanding written options are noted in the Schedule of Investments.
If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss.
The risk in writing covered call options is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing covered put options is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying options is that the Fund pays a premium whether or not the option is exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. Writers (sellers) of options are normally subject to unlimited risk of loss, as the seller will be obligated to deliver or take delivery of the security at a predetermined price which may, upon exercise of the option, be significantly different from the then-market value. However, the Fund may limit its risk of loss when writing an option by purchasing an option by purchasing an option similar to the one that is sold except for the fact it is further “out of the money”.
For the period ended February 28, 2019, the average daily premiums paid by the Fund for purchased options were $270, and the average daily premiums received by the Fund for written options were $521.
Note 3. Regulatory Matters And Litigation
From time to time, Virtus Investment Advisers, LLC (“VIA”), the Fund’s Adviser, Kayne Anderson Rudnick Investment Management Co. (“KAR”) Newfleet Asset Management LLC (“Newfleet”) and Rampart Investment Management Company LLC (“Rampart”) the Fund’s subadvisers 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, laws governing the activities of broker-dealers and other laws and regulations affecting their products and other activities. At this time, the Fund’s Adviser believes that the outcomes of such matters are not likely, either individually or in the aggregate, to be material to these financial statements.
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VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
FEBRUARY 28, 2019
Note 4. Recent Accounting Pronouncement
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), ASU No. 2018-13, which changes certain fair value measurement disclosure requirements. This ASU, in addition to other modifications and additions, removes the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for the timing of transfers between levels and the valuation process for Level 3 fair value measurements. For public companies, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Management has evaluated the implications of certain provisions of ASU No. 2018-13 and has determined to early adopt all aspects related to the removal and modification of certain fair value measurement disclosures under the ASU effective immediately.
Note 5. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that the following subsequent event requires recognition or disclosure in these financial statements.
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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. 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 Investment Company Act of 1940 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 Adviser and subadvisers vote 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.
FORM N-Q INFORMATION
The Fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission (the “SEC”) for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC’s website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC’s Public Reference Room. Information on the operation of the SEC’s Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330.
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VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
101 Munson Street
Greenfield, MA 01301-9668
This report is transmitted to the shareholders of Virtus Global Dividend & Income Fund Inc. for their information. This is not a prospectus, circular, or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
