QUARTERLY REPORT
Not FDIC Insured No Bank Guarantee May Lose Value |
March 31, 2018 |
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Board of Directors of Virtus Global Dividend & Income Fund Inc. (Fund) adopted a Managed Distribution Plan (the Plan) which 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 Funds investment performance from the amount of the Funds distributions or from the terms of the Funds Managed Distribution Plan.
The amounts and sources of distributions reported in the Funds notices pursuant to Section 19(a) of the Investment Company Act of 1940 are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Funds investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will send shareholders a Form 1099-DIV for 2018 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 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 three-month period ended March 31, 2018.
For the three months ended March 31, 2018, the funds net asset value (NAV) decreased 12.23%, including $0.339 in reinvested distributions, and its market price decreased 15.60%. During the same period, the funds composite benchmark, consisting of the funds composite benchmark, consisting of 60% Russell Developed Large Cap Index (net)(1) and 40% Bloomberg Barclays U.S. Aggregate Bond Index(2), declined 1.27%, including reinvested dividends. Performance for the composites underlying indices over this period included a loss of 1.26% for the Russell Developed Large Cap Index (net) and a loss of 1.46% for the Bloomberg Barclays U.S. Aggregate Bond Index.
The funds performance was reflective of the profound shift in the financial markets that occurred during the quarter and the impact of the funds options overlay strategy, which lost 8.51% (gross of expenses) for the three months ended March 31, 2018. The funds options overlay strategy was affected by market volatility that was at historically low levels in January, but returned in February, as evidenced by steep market losses early in the month, followed by a partial recovery and a plunge again in late March. While the options overlay strategy can adapt to a broad range of market volatility, an abrupt shift from lower to higher volatility, such as occurred twice in the quarter, can lead to significant losses. On balance, we continue to believe the options overlay strategy provides benefits to the fund over time when market volatility is more consistently in line with historical long-term levels.
Thank you to all shareholders for entrusting your assets to us. 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, virtus.com.
Sincerely,
George R. Aylward
President, Chief Executive Officer, and Director
Virtus Global Dividend & Income Fund Inc.
May 2018
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.
(1) | The Russell Developed Large Cap Index (net) is a free-float market capitalization-weighted index constructed to provide a comprehensive and unbiased barometer for the large-cap segment in the developed world, calculated on a total return basis with net dividends reinvested. |
(2) | The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market, calculated on a total return basis. |
2
MESSAGE TO SHAREHOLDERS (Continued)
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.
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.
Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund.
Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded.
Call/Put Spreads: Buying and selling call and put option spreads on the SPX Index risks the loss of the premium when buying and may increase downside losses.
Market Price/NAV: At the time of purchase and/or sale, an investors shares may have a market price that is above or below the funds NAV, which may increase the investors risk of loss.
3
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS
MARCH 31, 2018 (Unaudited)
Asset Allocations |
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The following table presents the portfolio within certain sectors or countries and as a percentage of total investments, net of written options as of March 31, 2018. |
| |||||||
Common Stocks |
62 | % | ||||||
Financials |
13 | % | ||||||
Telecommunication Services |
7 | |||||||
Energy |
7 | |||||||
Industrials |
6 | |||||||
All other Common Stock |
29 | |||||||
Corporate Bonds and Notes |
21 | |||||||
Financials |
7 | |||||||
Energy |
2 | |||||||
Health Care |
2 | |||||||
All other Corporate Bonds and Notes |
10 | |||||||
Mortgage-Backed Securities |
7 | |||||||
Asset-Backed Securities |
3 | |||||||
Leveraged Loans |
2 | |||||||
Other (including short-term investments) |
5 | |||||||
|
|
|||||||
Total |
100 | % | ||||||
|
|
See Notes to Schedules of Investments
4
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
5
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
6
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
7
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
8
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
9
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
10
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
11
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
12
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
13
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
14
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
15
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
16
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
See Notes to Schedules of Investments
17
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands except for strike price)
See Notes to Schedules of Investments
18
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
Open Purchased Options contracts as of March 31, 2018, were as follows:
Description of Options | Number of Contracts |
Contract Notional Amount |
Strike Price(1) |
Expiration Date |
Value | |||||||||||||||
Call Options |
||||||||||||||||||||
S&P 500® Index |
435 | $ | 126,150 | $ | 2,900 | 4/2/2018 | $ | 2 | ||||||||||||
S&P 500® Index |
541 | 157,431 | 2,910 | 4/4/2018 | 3 | |||||||||||||||
S&P 500® Index |
147 | 41,675 | 2,835 | 4/6/2018 | 2 | |||||||||||||||
S&P 500® Index |
430 | 123,840 | 2,880 | 4/9/2018 | | (2) | ||||||||||||||
S&P 500® Index |
500 | 143,500 | 2,870 | 4/11/2018 | 2 | |||||||||||||||
Put Options |
||||||||||||||||||||
S&P 500® Index |
435 | 108,315 | 2,490 | 4/2/2018 | 11 | |||||||||||||||
S&P 500® Index |
541 | 135,521 | 2,505 | 4/4/2018 | 58 | |||||||||||||||
S&P 500® Index |
147 | 34,545 | 2,350 | 4/6/2018 | 9 | |||||||||||||||
S&P 500® Index |
430 | 104,705 | 2,435 | 4/9/2018 | 65 | |||||||||||||||
S&P 500® Index |
500 | 119,500 | 2,390 | 4/11/2018 | 76 | |||||||||||||||
Total Purchased Options |
$ | 228 | ||||||||||||||||||
|
|
Open Written Options contracts as of March 31, 2018, were as follows:
Description of Options | Number of Contracts |
Contract Notional Amount |
Strike Price(1) |
Expiration Date |
Value | |||||||||||||||
Call Options |
||||||||||||||||||||
S&P 500® Index |
435 | $ | 123,105 | $ | 2,830 | 4/2/2018 | $ | (2 | ) | |||||||||||
S&P 500® Index |
541 | 153,644 | 2,840 | 4/4/2018 | (3 | ) | ||||||||||||||
S&P 500® Index |
147 | 40,940 | 2,785 | 4/6/2018 | (8 | ) | ||||||||||||||
S&P 500® Index |
430 | 120,830 | 2,810 | 4/9/2018 | (13 | ) | ||||||||||||||
S&P 500® Index |
500 | 139,750 | 2,795 | 4/11/2018 | (49 | ) | ||||||||||||||
Put Options |
||||||||||||||||||||
S&P 500® Index |
435 | 111,360 | 2,560 | 4/2/2018 | (19 | ) | ||||||||||||||
S&P 500® Index |
541 | 139,308 | 2,575 | 4/4/2018 | (297 | ) | ||||||||||||||
S&P 500® Index |
147 | 35,280 | 2,400 | 4/6/2018 | (10 | ) | ||||||||||||||
S&P 500® Index |
430 | 107,715 | 2,505 | 4/9/2018 | (175 | ) | ||||||||||||||
S&P 500® Index |
500 | 123,250 | 2,465 | 4/11/2018 | (196 | ) | ||||||||||||||
Total Written Options |
$ | (772 | ) | |||||||||||||||||
|
|
Footnote Legend:
(1) | Strike price not reported in thousands. |
(2) | Amount is less than $500. |
See Notes to Schedules of Investments
19
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MARCH 31, 2018
($ reported in thousands)
The following table provides a summary of inputs used to value the Funds investments as of March 31, 2018 (See Security Valuation Note 2A in the Notes to Financial Statements):
Total Value at March 31, 2018 |
Level 1 Quoted Prices |
Level 2 Significant Observable Inputs |
||||||||||
Debt Securities: |
||||||||||||
Asset-Backed Securities |
$ | 12,112 | $ | | $ | 12,112 | ||||||
Corporate Bonds And Notes |
77,210 | | 77,210 | |||||||||
Foreign Government Securities |
3,837 | | 3,837 | |||||||||
Leveraged Loans |
7,895 | | 7,895 | |||||||||
Mortgage-Backed Securities |
26,105 | | 26,105 | |||||||||
Municipal Bonds |
5,380 | | 5,380 | |||||||||
U.S. Government Securities |
2,029 | | 2,029 | |||||||||
Equity Securities: |
||||||||||||
Common Stocks |
232,169 | 215,871 | 16,298 | |||||||||
Preferred Stocks |
3,444 | 571 | 2,873 | |||||||||
Money Market Mutual Fund |
6,061 | 6,061 | | |||||||||
Purchased Options |
228 | 86 | 143 | |||||||||
|
|
|
|
|
|
|||||||
Total Investments before Written Options |
$ | 376,470 | $ | 222,588 | $ | 153,882 | ||||||
|
|
|
|
|
|
|||||||
Written Options |
$ | (772 | ) | $ | (527 | ) | $ | (245 | ) | |||
|
|
|
|
|
|
|||||||
Total Investments Net of Written Options |
$ | 375,698 | $ | 222,061 | $ | 153,637 | ||||||
|
|
|
|
|
|
There were no securities valued using significant unobservable inputs (Level 3) at March 31, 2018.
There were no transfers between Level 1, Level 2 or Level 3 related to securities held at March 31, 2018.
See Notes to Schedules of Investments
20
VIRTUS GLOBAL DIVIDEND & INCOME FUND
FINANCIAL HIGHLIGHTS (Unaudited)
MARCH 31, 2018
(Reported in thousands except for the per share amounts)
Total Net Assets | Net Asset Value per share |
|||||||||||||||
Beginning of period: December 31, 2017 |
$ | 319,176 | $ | 13.05 | ||||||||||||
Net investment income* |
$ | 2,784 | $ | 0.11 | ||||||||||||
Net realized and unrealized gain on investments |
(41,339 | ) | (1.69 | ) | ||||||||||||
Dividends from net investment income and distributions from net long-term and short-term capital gains** |
(8,299 | ) | (0.34 | ) | ||||||||||||
Capital share transactions: |
||||||||||||||||
Issuance of common stock related to reinvestment of distributions |
327 | | ||||||||||||||
|
|
|
|
|||||||||||||
Net increase (decrease) in net assets/net asset value |
(46,527 | ) | (1.92 | ) | ||||||||||||
|
|
|
|
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End of period: March 31, 2018 |
$ | 272,649 | $ | 11.13 | ||||||||||||
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|
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* | Computed 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 March 31, 2018, we estimate that 24.8% of distributions will represent net investment income, and 75.2% will represent return of capital. Also refer to inside front cover for information on the Managed Distribution Plan. |
See Notes to Schedules of Investments
21
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS
MARCH 31, 2018 (Unaudited)
Note 1. Significant Accounting Policies
The Fund is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the Act).
The significant accounting policies consistently followed by the Fund in the preparation of its Schedule of Investments are summarized below 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 |
Security valuation procedures for the Fund, which include nightly price variance, as well as back-testing such as bi-weekly unchanged price, monthly secondary source and transaction analysis, have been approved by the Board of Directors (the Board, or the Directors). All internally fair valued securities are approved by a valuation committee appointed by the Board (the Valuation Committee). The Valuation Committee is comprised of certain members of management as identified to the Board and convenes independently from portfolio management. All internally fair valued securities are updated daily and reviewed in detail by the Valuation Committee monthly unless changes occur within the period. The Valuation Committee reviews the validity of the model inputs and any changes to the model. Fair valuations are reviewed quarterly by the Board.
The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Funds 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 Committees own assumptions in determining the fair value of investments). |
A description of the valuation techniques applied to the Funds 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
22
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2018 (Unaudited)
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 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 not widely traded, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Listed derivatives 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 are valued as of the close of regular trading on the NYSE each business day. Both are categorized as Level 1 in the hierarchy.
A summary of the inputs used to value the Funds 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.
23
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2018 (Unaudited)
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 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 Funds 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 loan agreement. 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. Loan agreements 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 (London Interbank Offered Rate), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a Leveraged loans 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 loans. 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.
24
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2018 (Unaudited)
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 Funds 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.
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 to cover outstanding written options are noted in the Schedule of Investments. Purchased options are reported as an asset within Investment in securities at value in the Statement of Assets and Liabilities. Options written are reported as a liability within Written options outstanding at value. Changes in value of the purchased option is included in Net change in unrealized appreciation (depreciation) on investments in the Statement of Operations. Changes in value of written options is included in Net change in unrealized appreciation (depreciation) on written options.
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. Gain or loss on purchased options is included in Net realized gain (loss) on investments in the Statement of Operations. Gain or loss on written options is presented separately as Net realized gain (loss) on written options in the Statement of Operations.
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.
25
VIRTUS GLOBAL DIVIDEND & INCOME FUND INC.
NOTES TO SCHEDULE OF INVESTMENTS (Continued)
MARCH 31, 2018 (Unaudited)
For the period ended March 31, 2018, the average daily premiums paid by the Fund for purchased options were $634, and the average daily premiums received by the Fund for written options were $1,219.
Note 3. Illiquid and Restricted Securities
($ reported in thousands)
Investments are generally considered illiquid if they cannot be disposed of within seven days in the ordinary course of business at the approximate amount at which such securities have been valued by the Fund. Additionally, the following information is also considered in determining liquidity: the frequency of trades and quotes for the investment, whether the investment is listed for trading on a recognized domestic exchange and/or whether two or more brokers are willing to purchase or sell the security at a comparable price, the extent of market making activity in the investment and the nature of the market for investment. Restricted securities are illiquid securities, as defined above, not registered under the Securities Act of 1933, as amended (the 1933 Act). Generally, 144A securities are excluded from this category, except where defined as illiquid. The Fund will bear any costs, including those involved in registration under the 1933 Act, in connection with the disposition of such securities.
At March 31, 2018, the Fund did not hold any securities that were both illiquid and restricted.
Note 4. Regulatory Matters And Litigation
From time to time, Virtus Investment Advisers, LLC (VIA), the Funds Adviser, Kayne Anderson Rudnick Investment Management Co. (KAR) and Newfleet Asset Management LLC (Newfleet) the Funds 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 Funds Adviser believes that the outcomes of such matters are not likely, either individually or in the aggregate, to be material to these financial statements.
Note 5. Recent Accounting Pronouncement
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the ASU) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
Note 6. 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 there are no subsequent events that require 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
Many of you have questions about our reinvestment plan. We urge shareholders who want to take advantage of this plan and whose shares are held in Street Name, to consult your broker as soon as possible to determine if you must change registration into your own name to participate.
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 votes proxies relating to portfolio securities in accordance with procedures that have been approved by the Funds Board of Directors. 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 Securities and Exchange Commissions website at http://www.sec.gov.
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 SECs website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SECs Public Reference Room. Information on the operation of the SECs 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.