UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-22473

 

 

Virtus Stone Harbor Emerging Markets Income Fund

(Exact name of registrant as specified in charter)

 

 

101 Munson Street

Greenfield, MA 01301-9683

(Address of principal executive offices) (Zip code)

 

 

Jennifer Fromm, Esq.

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

One Financial Plaza

Hartford, CT 06103-2608

(Name and address of agent for service)

 

 

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

Date of fiscal year end: November 30

Date of reporting period: November 30, 2023

 

 

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

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

 

 

 


Item 1.

Reports to Stockholders.

 

  (a)

The Report to Shareholders is attached herewith.


ANNUAL REPORT

November 30, 2023
Virtus Stone Harbor Emerging Markets Income Fund

Not FDIC Insured • No Bank Guarantee • May Lose Value




MESSAGE TO SHAREHOLDERS
To Virtus Stone Harbor Emerging Markets Income Fund Shareholders:
I am pleased to present this annual report, which reviews the performance of your Fund for the 12 months ended November 30, 2023.
Effective December 15, 2023, the Virtus Stone Harbor Emerging Markets Total Income Fund (NYSE: EDI) was reorganized into your Fund (EDF). The two funds had substantially similar investment objectives and strategies, and the same fund management. The merger resulted in a higher combined level of assets that may offer reduced costs, economies of scale, and increased efficiencies.
The fiscal year saw a generalized recovery from the volatility that characterized much of 2022. But investor sentiment swung between optimism and pessimism depending on the outlook for inflation and interest rates. For the 12 months ended November 30, 2023, the Fund’s net asset value (NAV) returned 21.20%, and its market price returned 22.14%. For the same period, the Fund’s composite benchmark, which is composed of the three sectors of emerging markets (EM) debt, returned 8.50%. The performance of the underlying sectors was 6.42% for hard currency sovereign debt, as represented by the JPMorgan EMBI Global Diversified Index, 11.56% for local currency sovereign debt, as represented by the JPMorgan GBI-EM Global Diversified Index, and 7.47% for corporate debt, as represented by the JPMorgan CEMBI Broad Diversified Index.
Please call our customer service team at 866-270-7788 if you have questions about your account or require assistance. We appreciate your business and remain committed to your long-term financial success.

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

Refer to the Manager’s Discussion section for your Fund’s performance. Performance data quoted represents past results. Past performance is no guarantee of future results, and current performance may be higher or lower than the performance shown above. Investing involves risk, including the risk of loss of principal invested.
1


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
November 30, 2023
About the Fund:
Virtus Stone Harbor Emerging Markets Income Fund’s (NYSE: EDF) (the “Fund”) investment objective is to maximize total return, which consists of income on its investments and capital appreciation. The Fund normally will invest at least 80% of its net assets (plus any borrowings for investment purposes) in emerging markets securities. 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 with the expectation of investing at higher yields on its investments. During the period, the Fund utilized short-term reverse repurchase agreements through which it borrowed money by selling securities under the obligation to repurchase them at a later date at a fixed price. The Fund’s management team adjusted borrowing levels to reflect the team’s outlook on emerging markets risk, increasing borrowings when it felt opportunities had improved and reducing borrowings when, in the team’s judgment, macroeconomic risk had risen. At November 30, 2023, the Fund had borrowings of approximately $14 million, which represented about 16% of the Fund’s managed assets.
Manager Comments – Stone Harbor Investment Partners (Stone Harbor)
Stone Harbor is a global credit specialist with expertise in emerging and developed markets debt.  With three decades of informed experience allocating risk in complex areas of the fixed income markets, Stone Harbor manages global credit portfolios for institutional clients around the world. The following commentary is provided by the respective portfolio team at Stone Harbor and covers the Fund’s portfolio for the year ended November 30, 2023.
How did the markets perform during the Fund’s fiscal year ended November 30, 2023?
Lower inflation readings in many countries in both developed markets (DMs) and emerging markets (EMs) were the key focus during the 12-month period ended November 30, 2023. Following an initial period of market volatility in early 2023 – marked by high levels of inflation, banking sector stress, and uncertainties associated with the U.S. debt ceiling – macroeconomic dynamics began to show improvement. Inflation levels across EMs and DMs moved lower over 2023. Throughout the period, central banks continued to monitor incoming economic data, as market participants watched for a potential change in the direction of policy interest rates, particularly by the U.S. Federal Reserve (the Fed).
While the narrative around easing U.S. inflation and the end to the Fed’s hiking cycle dominated market expectations by the end of the fiscal year, inflation moderation and downward policy rate adjustments had begun earlier in many EMs. In addition, improved fundamentals in many emerging economies, supported by fiscal strength and prudent policymaking, helped to produce primary fiscal surpluses or modest deficits, as well as stabilize debt-to-gross domestic product (GDP) levels. Ultimately, many EMs were better-positioned to respond to external shocks, and even lead the economic cycle relative to DMs. Other more fragile emerging nations were supported by the International Monetary Fund (IMF) and other multilateral organizations. In November 2023, the IMF board approved plans to enhance lending resources to member countries.
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
2


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
Against this backdrop, the yield on the U.S. 10-year Treasury closed at 4.37% at the end of the reporting period after reaching a period high of 4.95% in late October 2023 amid uncertainty about U.S. interest rates. The U.S. dollar retreated against the euro and EM currencies appreciated, on average.
What factors affected the Fund’s performance during fiscal year?
The Fund’s total return on net asset value (NAV) for the 12 months ended November 30, 2023, was 21.20%.  For the same period, the Fund’s composite benchmark, which is comprised of the three sectors of emerging markets debt, returned 8.50%.  Total returns of indexes for emerging markets hard currency sovereign and corporate debt were 6.42% and 7.47%, as represented by the JPMorgan EMBI Global Diversified Index and the JPMorgan CEMBI Broad Diversified Index, respectively, for the 12-month period. The average yield of local currency sovereign debt, as represented by the JPMorgan GBI-EM Global Diversified Index, declined 0.38% to 6.48%. Local currency sovereign debt outperformed, posting a total return of 11.56%. A key driver of the Fund’s performance was positive returns from country selection in hard currency sovereign debt.
At the country level, the largest contributors to performance were U.S. dollar-denominated sovereign debt in Argentina, El Salvador, and Pakistan. Other positive contributors to performance included local currency sovereign debt exposure in Mexico, Brazil, and Colombia, as well as U.S. dollar-denominated corporate debt in Mexico, Ghana, and Indonesia.
Among the largest detractors from the Fund’s performance were allocations to U.S. dollar-denominated sovereign bonds in Ecuador, Ethiopia, and Peru. Local currency sovereign debt exposures in South Africa also detracted from performance, as did hard currency corporate debt exposures in China and Nigeria.
The Fund uses various derivative instruments in an effort to manage credit risk, interest rate risk, and foreign exchange risk, and to efficiently gain certain investment exposures. These derivative positions may increase or decrease the Fund’s exposure to these risks. For the reporting period, derivatives contributed 3.27% to Fund performance.
Level distribution practice
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 year, the practice did not have a material impact on the Fund’s investment strategy. Please refer to the financial highlights and federal income tax information note in this report for further information about the Fund’s distributions and its effect on net asset value.
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


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
Average Annual Total Returns1  for periods ended 11/30/23

  1 Year 5 Years 10 Years
Market Value1,2 22.14% -4.54% 0.56%
Net Asset Value1,2 21.20% -0.93% 0.52%
Composite Index1,3 8.50% 1.54% 2.05%
J.P. Morgan GBI-EM Global Diversified Index1,3 11.56% 0.77% -0.28%
J.P. Morgan CEMBI Broad Diversified Index1,3 7.47% 2.72% 3.48%
J.P. Morgan EMBI Global Diversified Index1,3 6.42% 1.00% 2.79%
All returns represent past performance which is no guarantee of future results. Current performance may be higher or lower than the performance shown. Please visit Virtus.com for performance data current to the most recent month-end.
Growth of $10,000  for periods ended 11/30

This graph shows the change in value of a hypothetical investment of $10,000 in the Fund for the years indicated. For comparison, the same investment is shown in the indicated index.
1 Past performance is not indicative of future results. Current performance may be lower or higher than performance in historical periods.
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
4


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
November 30, 2023
2 Total return on market value is calculated assuming a purchase of common shares on the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total return on market value is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not reflected. Total return on market value does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. Total return on net asset value uses the same methodology, but with use of net asset value for the beginning, ending and reinvestment values.
3 The indexes are unmanaged and not available for direct investment; therefore, their performance does not reflect the expenses associated with active management of an actual portfolio.
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 7.
5


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND PORTFOLIO HOLDINGS SUMMARY WEIGHTINGS (Unaudited)
November 30, 2023
The following tables present the portfolio holdings within certain industry or countries as a
percentage of total investments (excluding reverse repurchase agreements and swaps contracts) at November 30, 2023.
Asset Allocations
Foreign Government Securities   53%
Corporate Bonds and Notes   39
Exploration & Production 22%  
Financial & Lease 6  
Electric 5  
Technology 2  
All other Corporate Bonds and Notes 4  
Short-Term Investment   5
Credit Linked Notes   3
Total   100%
     
Country Weightings
Mexico 27%
Colombia 7
Nigeria 7
Indonesia 6
Brazil 5
United States 5
Angola 4
Other 39
Total 100%
   
6


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
KEY INVESTMENT TERMS (Unaudited)
November 30, 2023
Composite Index: 33% J.P. Morgan EMBI Global Diversified / 33% J.P. Morgan CEMBI Broad Diversified / 33% J.P. Morgan GBI-EM Global Diversified
The composite index consists of 33.33% J.P. Morgan EMBI Global Diversified Index, 33.33% J.P. Morgan CEMBI Broad Diversified Index and 33.33% J.P. Morgan GBI-EM Global Diversified Index. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Designated Activity Company (“DAC”)
A new company type that was created as part of the New Companies Act 2014, which came into force on the 1st June 2015 in Ireland. This limited company type is applicable to those companies who wish to outline and define a specific type of business in their Constitution, rather than have unlimited powers as per the LTD company type.
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.
Gross Domestic Product (“GDP”)
The GDP represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs, and the foreign trade balance.
Hard Currency
Hard currency refers to a currency that is generally issued by developed countries, globally traded, and seen as politically and economically stable. Generally, when a fund invests in hard currency sovereign debt, that debt is denominated in U.S. Dollars.
International Monetary Fund (“IMF”)
The International Monetary Fund is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. The IMF works to achieve sustainable growth and prosperity for all of its member countries by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being.
J.P. Morgan CEMBI Broad Diversified Index
The J.P. Morgan CEMBI Broad Diversified Index tracks total returns of U.S. dollar-denominated debt instruments issued by corporate entities in emerging market countries and consists of an investable universe of corporate bonds. The minimum amount outstanding required is $300 million for the J.P. Morgan CEMBI Broad Diversified. The J.P. Morgan CEMBI Broad Diversified limits the weights of those index countries with larger corporate debt stocks by only including a specified portion of these countries’ eligible current face amounts of debt outstanding. 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.
J.P. Morgan EMBI Global Diversified Index
The J.P. Morgan EMBI Global Diversified Index (EMBI Global Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. The index limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts outstanding. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
7


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
KEY INVESTMENT TERMS (Unaudited) (Continued)
November 30, 2023
J.P. Morgan GBI-EM Global Diversified Index
The J.P. Morgan GBI-EM Global Diversified Index consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. 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.
Joint Stock Company (“JSC”)
A joint-stock company is a business entity in which shares of the company’s stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.
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.
Secured Overnight Financing Rate (“SOFR”)
A broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.
8


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS
November 30, 2023
($ reported in thousands)
  Par Value(1)   Value
Foreign Government Securities—60.7%
Angola —4.9%    
Republic of Angola      
144A
9.500%, 11/12/25(2)
$        1,075   $  1,046
144A
8.250%, 5/9/28(2)
          478       423
144A
9.375%, 5/8/48(2)
          278       213
RegS
8.250%, 5/9/28(3)
          850       752
Republic of Angola Via Avenir II B.V. (6 month LIBOR + 4.500%) RegS
10.163%, 12/7/23(3)(4)(5)
          173       173
Republic of Angola Via Avenir Issuer II Ireland DAC RegS
6.927%, 2/19/27(3)(4)
        1,110     1,029
        3,636
       
 
Argentina—1.7%    
Provincia De Buenos Aires RegS
6.375%, 9/1/37(3)(5)
        2,416       888
Republic of Argentina
3.625%, 7/9/35(5)
        1,090       351
        1,239
       
 
Brazil—4.9%    
Brazil Notas do Tesouro Nacional Series F
10.000%, 1/1/33
       18,800 BRL     3,632
Colombia—4.2%    
Republic of Colombia
4.500%, 3/15/29(6)
        1,660     1,486
Titulos De Tesoreria
7.250%, 10/18/34
    8,275,000 COP     1,598
        3,084
       
 
  Par Value(1)   Value
       
Ecuador—2.5%    
Republic of Ecuador      
144A
6.000%, 7/31/30(2)(5)
$        3,561   $  1,638
RegS
6.000%, 7/31/30(3)(5)
          436       201
        1,839
       
 
Egypt—4.4%    
Arab Republic of Egypt 144A
4.750%, 4/16/26(2)
        3,879 EUR     3,272
El Salvador—4.9%    
Republic of El Salvador      
RegS
5.875%, 1/30/25(3)
          718       660
RegS
6.375%, 1/18/27(3)
        3,039     2,562
RegS
8.625%, 2/28/29(3)
          340       289
RegS
8.250%, 4/10/32(3)
          118        97
        3,608
       
 
Gabon—3.9%    
Republic of Gabon      
144A
6.950%, 6/16/25(2)(6)
        2,080     1,908
RegS
6.950%, 6/16/25(3)
        1,069       981
        2,889
       
 
Indonesia—4.0%    
Indonesia Government Bond
8.375%, 4/15/39
   40,300,000 IDR     2,953
Iraq—1.1%    
Republic of Iraq RegS
5.800%, 1/15/28(3)
          844       775
See Notes to Financial Statements
9


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
  Par Value(1)   Value
       
Ivory Coast—1.0%    
Ivory Coast Government International Bond      
RegS
5.250%, 3/22/30(3)
          489 EUR   $    464
RegS
5.875%, 10/17/31(3)
          330 EUR       310
          774
       
 
Kenya—0.3%    
Republic of Kenya RegS
6.875%, 6/24/24(3)
$          225       217
Lebanon—0.2%    
Lebanese Republic      
6.400%, 5/26/23(7)           848        46
RegS
8.250%, 4/12/21(3)(7)
        2,237       123
          169
       
 
Mexico—4.7%    
Mex Bonos Desarr
7.750%, 5/29/31
       66,150 MXN     3,477
Mongolia—0.2%    
Mongolia Government International Bond 144A
8.650%, 1/19/28(2)
          156       160
Mozambique—0.9%    
Republic of Mozambique 144A
9.000%, 9/15/31(2)(5)
          879       701
Nigeria—7.1%    
Republic of Nigeria      
144A
6.500%, 11/28/27(2)
        1,339     1,185
144A
6.125%, 9/28/28(2)(6)
          697       591
144A
8.375%, 3/24/29(2)
          401       368
144A
7.696%, 2/23/38(2)(6)
          860       650
  Par Value(1)   Value
       
Nigeria—continued    
RegS
8.375%, 3/24/29(3)(6)
$        2,200   $  2,019
RegS
8.747%, 1/21/31(3)
          450       405
        5,218
       
 
Pakistan—1.4%    
Islamic Republic of Pakistan      
144A
6.000%, 4/8/26(2)
          530       363
RegS
8.250%, 4/15/24(3)
          750       704
        1,067
       
 
Papua New Guinea —1.1%    
Papua New Guinea Government International Bond RegS
8.375%, 10/4/28(3)(6)
          867       804
Senegal—0.4%    
Republic of Senegal 144A
6.250%, 5/23/33(2)
          365       303
South Africa—3.1%    
Republic of South Africa      
6.500%, 2/28/41        26,900 ZAR       857
8.750%, 2/28/48        36,800 ZAR     1,436
        2,293
       
 
Sri Lanka—0.2%    
Republic of Sri Lanka 144A
7.850%, 3/14/29(2)(7)
          300       150
Tunisia—0.4%    
Tunisian Republic 144A
6.375%, 7/15/26(2)
          360 EUR       264
Turkey—1.2%    
Republic of Turkiye
9.875%, 1/15/28
          804       863
See Notes to Financial Statements
10


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
  Par Value(1)   Value
       
Venezuela—0.5%    
Republic of Venezuela RegS
9.000%, 5/7/23(3)(7)
$        2,250   $     345
Zambia—1.5%    
Republic of Zambia      
144A
5.375%, 9/20/24(2)(7)
          124        67
144A
8.970%, 7/30/27(2)(6)(7)
          865       523
RegS
8.970%, 7/30/27(3)(6)(7)
          900       545
        1,135
       
 
Total Foreign Government Securities
(Identified Cost $48,418)
   44,867
       
 
Corporate Bonds and Notes—44.0%
Brazil—0.6%    
MC Brazil Downstream Trading S.a.r.l. 144A
7.250%, 6/30/31(2)(6)
          551       414
Colombia—3.4%    
Empresas Publicas de Medellin ESP RegS
7.625%, 9/10/24(3)
    2,700,000 COP       637
Gran Tierra Energy, Inc. 144A
9.500%, 10/15/29(2)
        2,144     1,838
        2,475
       
 
Ghana—2.4%    
Tullow Oil plc RegS
7.000%, 3/1/25(3)(6)
        1,912     1,743
India—1.7%    
Adani Electricity Mumbai Ltd. RegS
3.949%, 2/12/30(3)
          905       706
  Par Value(1)   Value
       
India—continued    
Adani Green Energy Ltd. RegS
4.375%, 9/8/24(3)
$          600   $    571
        1,277
       
 
Indonesia—2.5%    
Theta Capital Pte Ltd.      
RegS 8.125%, 1/22/25(3)           935       779
RegS 6.750%, 10/31/26(3)(6)         1,550     1,101
        1,880
       
 
Kazakhstan—1.3%    
Development Bank of Kazakhstan JSC 144A
10.950%, 5/6/26(2)
      506,000 KZT       939
Macau—1.1%    
Melco Resorts Finance Ltd. RegS
5.375%, 12/4/29(3)
          480       398
Studio City Finance Ltd. 144A
5.000%, 1/15/29(2)
          500       388
          786
       
 
Mexico—25.5%    
Banco Mercantil del Norte S.A.      
144A 5.875%(2)(6)(8)         1,268     1,135
RegS 6.750%(3)(8)           770       750
Cemex SAB de C.V. 144A
9.125% (2)(6)(8)
          793       827
Petroleos Mexicanos      
7.470%, 11/12/26        45,240 MXN     2,265
7.690%, 1/23/50(6)         3,629     2,402
RegS 6.700%, 2/16/32(3)           171       132
See Notes to Financial Statements
11


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
  Par Value(1)   Value
       
Mexico—continued    
Poinsettia Finance Ltd. RegS
6.625%, 6/17/31(3)
$       12,162   $  9,978
Sixsigma Networks Mexico S.A. de C.V. 144A
7.500%, 5/2/25(2)(6)
        1,541     1,382
       18,871
       
 
Nigeria—0.4%    
IHS Holding Ltd. 144A
6.250%, 11/29/28(2)
          400       318
Peru—0.4%    
Petroleos del Peru S.A.      
RegS 4.750%, 6/19/32(3)           250       174
RegS 5.625%, 6/19/47(3)           225       133
          307
       
 
South Africa—0.9%    
Eskom Holdings SOC Ltd. 144A
8.450%, 8/10/28(2)
          701       691
Turkey—0.8%    
Aydem Yenilenebilir Enerji AS 144A
7.750%, 2/2/27(2)(6)
          655       577
  Par Value(1)   Value
       
Uzbekistan—1.5%    
Uzauto Motors AJ 144A
4.850%, 5/4/26(2)
$        1,285   $   1,113
Venezuela—0.5%    
Petroleos de Venezuela S.A.      
RegS 9.000%, 11/17/21(3)(7)         2,000       230
RegS 12.750%, 2/17/22(3)(7)           975       135
          365
       
 
Vietnam—1.0%    
Mong Duong Finance Holdings B.V. 144A
5.125%, 5/7/29(2)(6)
          821       754
Total Corporate Bonds and Notes
(Identified Cost $36,122)
   32,510
       
 
Credit Linked Notes—3.9%
Iraq—3.9%    
Republic of Iraq      
(Counterparty: BOA)
3.211%, 1/1/28(5)(9)
      442,832 JPY     2,684
(Counterparty: BOA)
3.340%, 1/6/28(5)(9)
       24,532 JPY       149
Total Credit Linked Notes
(Identified Cost $4,805)
    2,833
See Notes to Financial Statements
12


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
  Par Value(1)   Value
       
 
Total Long-Term Investments—108.6%
(Identified Cost $89,345)
  $  80,210
    
  Shares  
Short-Term Investment—5.2%
Money Market Mutual Fund—5.2%
Dreyfus Government Cash Management Fund - Institutional Shares (seven-day effective yield 5.237%)(10)     3,860,409   3,860
Total Short-Term Investment
(Identified Cost $3,860)
  3,860
     
 
TOTAL INVESTMENTS—113.8%
(Identified Cost $93,205)
 $ 84,070
Other assets and liabilities, net—(13.8)% (10,164)
NET ASSETS—100.0%  $ 73,906
    
Abbreviations:
CDS Credit Default Swap
DAC Designated Activity Company
JSC Joint Stock Company
LIBOR London Interbank Offered Rate
    
Footnote Legend:
(1) Par Value disclosed in foreign currency is reported in thousands.
(2) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2023, these securities amounted to a value of $24,201 or 32.7% of net assets.
(3) Regulation S security. Security is offered and sold outside of the United States; therefore, it is exempt from registration with the SEC under Rules 903 and 904 of the Securities Act of 1933.
(4) This Note was issued for the sole purpose of funding a leveraged loan between the issuer and the borrower. As the credit risk for this security lies solely with the borrower, the name represented here is that of the borrower.
(5) Variable rate security. Rate disclosed is as of November 30, 2023. Information in parenthesis represents benchmark and reference rate for each security. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions, or, for mortgage-backed securities, are impacted by the individual mortgages which are paying off over time. These securities do not indicate a reference rate and spread in their descriptions.
(6) All or a portion is segregated as collateral for reverse repurchase agreements. On November 30, 2023, securities valued at $18,255 were pledged as collateral for reverse repurchase agreements.
(7) Security in default; no interest payments are being received.
(8) No contractual maturity date.
(9) The value of this security was determined using significant unobservable inputs and is reported as a Level 3 security in the Fair Value Hierarchy table located after the Schedule of Investments.
(10) Shares of this fund are publicly offered, and its prospectus and annual report are publicly available.
For information regarding the abbreviations, see the Key Investment Terms starting on page 7.
See Notes to Financial Statements
13


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
Counterparties:  
BCLY Barclays
BOA Bank of America
JPM JPMorgan Chase Bank N.A.
    
Foreign Currencies:  
BRL Brazilian Real
COP Colombian Peso
EUR Euro
IDR Indonesian Rupiah
JPY Japanese Yen
KZT Kazakhstani Tenge
MXN Mexican Peso
ZAR South African Rand
Reverse Repurchase Agreements as of November 30, 2023 were as follows:
Counterparty Interest Rate Acquisition Date* Amount
JPM 5.60% 11/02/23 $ (595)
JPM 5.65 11/02/23 (661)
JPM 5.65 11/02/23 (342)
JPM 5.70 11/02/23 (1,983)
JPM 5.75 11/02/23 (327)
JPM 5.80 11/02/23 (648)
JPM 5.80 11/02/23 (663)
JPM 5.80 11/02/23 (444)
JPM 5.80 11/02/23 (809)
JPM 5.80 11/02/23 (416)
JPM 5.80 11/02/23 (480)
JPM 5.80 11/02/23 (400)
JPM 5.90 11/02/23 (225)
JPM 5.90 11/02/23 (995)
JPM 5.90 11/02/23 (1,023)
JPM 5.95 11/02/23 (1,236)
JPM 6.05 11/02/23 (477)
JPM 6.10 11/02/23 (819)
JPM 6.10 11/02/23 (1,629)
Total   $(14,172)
    
Footnote Legend:
* All agreements can be terminated by either party on demand at value plus accrued interest.
See Notes to Financial Statements
14


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
Over-the-counter credit default swaps - sell protection(1) outstanding as of November 30, 2023 were as follows:
Reference Entity Payment
Frequency
Counterparty Fixed
Rate
Expiration
Date
Notional
Amount(2)
  Value   Premiums
Paid
(Received)
  Unrealized
Appreciation
  Unrealized
Depreciation
Republic of Argentina 5 Year CDS,
CCC- /CCCu(3),*
Quarterly BCLY 5.000% 12/20/25 $11,200    $(6,154)   $(1,450)   $—   $(4,704)
Total $(6,154)   $(1,450)   $—   $(4,704)
    
Footnote Legend:
(1) If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying investments comprising the referenced index or (ii) pay a net settlement amount in the form of cash or investments equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying investments comprising the referenced index.
(2) The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
(3) Based on Republic of Argentina Sovereign Debt Obligation, USD Denominated 1.00% fixed coupon, 07/09/2029 maturity.
* S&P / Morningstar DBRS, respectively
See Notes to Financial Statements
15


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
The following table summarizes the value of the Fund’s investments as of November 30, 2023, based on the inputs used to value them (See Security Valuation Note 2A in the Notes to Financial Statements):
  Total
Value at
November 30, 2023
  Level 1
Quoted Prices
  Level 2
Significant
Observable
Inputs
  Level 3
Significant
Unobservable
Inputs
Assets:              
Debt Instruments:              
Foreign Government Securities $ 44,867   $   $ 44,867   $
Corporate Bonds and Notes 32,510     32,510  
Credit Linked Notes 2,833       2,833
Money Market Mutual Fund 3,860   3,860    
Total Assets 84,070   3,860   77,377   2,833
Liabilities:              
Other Financial Instruments:(1)              
Over-the-Counter Credit Default Swap (6,154)     (6,154)  
Reverse Repurchase Agreements (14,172)     (14,172)  
Total Liabilities (20,326)     (20,326)  
Total Investments $ 63,744   $3,860   $ 57,051   $2,833
    
(1) Other financial instruments are derivative instruments reflected in the Schedule of Investments. Swaps are reported at value. For liabilities arising from reverse repurchase agreements, the carrying amount approximates fair value due to the short-term maturity of these financial instruments.
There were no transfers into or out of Level 3 related to securities held at November 30, 2023.
Some of the Fund’s investments that were categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of Level 3 investments.
See Notes to Financial Statements
16


Virtus Stone Harbor Emerging Markets Income Fund
SCHEDULE OF INVESTMENTS (Continued)
November 30, 2023
($ reported in thousands)
The following is a reconciliation of assets of the Fund for Level 3 investments for which significant unobservable inputs were used to determine fair value.
  Total   Corporate
Bonds
And Notes
  Credit
Linked
Notes
Investments in Securities          
Balance as of November 30, 2022: $  3,632   $  108(a)   $ 3,524
Accrued discount/(premium) 71     71
Net realized gain (loss) (384)   (85)   (299)
Net change in unrealized appreciation (depreciation)(b) 762   464   298
Purchases (c)   (c)  
Sales (d) (1,248)   (487)   (761)
Balance as of November 30, 2023 $  2,833   $  —   $ 2,833
(a) Includes internally fair valued security currently priced at zero ($0).
(b) The net change in unrealized appreciation (depreciation) on investments still held at November 30, 2023, was $298.
(c) Amount is less than $500 (not in thousands).
(d) Includes paydowns on securities.
See Notes to Financial Statements
17


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2023
(Reported in thousands except shares and per share amounts)
Assets  
Investment in securities at value (Identified cost $93,205)

$ 84,070
Foreign currency at value (cost $—(a))

(a)
Cash

2,309
Cash collateral pledged for swaps

6,242
Receivables  
Investment securities sold

533
Dividends and interest

1,769
Tax reclaims

3
Prepaid Trustees’ retainer

(a)
Prepaid expenses and other assets (Note 4)

16
Total assets

94,942
Liabilities  
Borrowings through reverse repurchase agreements (Note 8) 

14,172
Over-the-counter swaps at value (Swap premium $1,450)

6,154
Payables  
Investment securities purchased

369
Investment advisory fees (Note 4)

72
Interest on reverse repurchase agreements

67
Professional fees

66
Administration and accounting fees

8
Trustee deferred compensation plan (Note 4)

5
Other accrued expenses

123
Total liabilities

21,036
Net Assets

$ 73,906
Net Assets Consist of:  
Common stock ($0.001 par value; unlimited shares authorized)

$ 17
Capital paid in on shares of beneficial interest

224,724
Total distributable earnings (accumulated losses)

(150,835)
Net Assets

$ 73,906
Common Shares Outstanding

17,351,391
Net Asset Value Per Share(b)

$ 4.26
    
(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
18


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
STATEMENT OF OPERATIONS YEAR ENDED
November 30, 2023
($ reported in thousands)
Investment Income  
Interest

$ 10,774
Dividends

106
Foreign taxes withheld

(41)
Total investment income

10,839
Expenses  
Investment advisory fees

932
Administration and accounting fees

107
Professional fees

243
Printing fees and expenses

107
Transfer agent fees and expenses

30
Trustees’ fees and expenses

19
Custodian fees

11
Miscellaneous expenses

83
Total expenses before interest expense

1,532
Interest expense on reverse repurchase agreements (Note 8)

1,156
Total expenses after interest expense

2,688
Net investment income (loss)

8,151
Net Realized and Unrealized Gain (Loss) on Investments  
Net realized gain (loss) from:  
 Investments

(10,493)
Foreign currency transactions

30
Foreign capital gains tax

(—) (1)
Forward foreign currency exchange contracts

(300)
Swaps

(4,149)
Net change in unrealized appreciation (depreciation) on:  
 Investments

13,792
Foreign currency transactions

5
Forward foreign currency exchange contracts

172
Swaps

6,718
Net realized and unrealized gain (loss) on investments

5,775
Net increase (decrease) in net assets resulting from operations

$ 13,926
    
(1) Amount is less than $500 (not in thousands).
See Notes to Financial Statements
19


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in thousands)
  Year Ended
November 30, 2023
  Year Ended
November 30, 2022
Increase (Decrease) In Net Assets
From Operations
     
Net investment income (loss)

$ 8,151   $ 8,808
Net realized gain (loss)

(14,912)   (12,323)
Net change in unrealized appreciation (depreciation)

20,687   (19,311)
Increase (decrease) in net assets resulting from operations

13,926   (22,826)
From Dividends and Distributions to Shareholders      
Net investment income and net realized gains

(11,445)   (1,512)
Return of capital

(951)   (10,711)
Dividends and Distributions to Shareholders

(12,396)   (12,223)
From Capital Share Transactions      
Reinvestment of distributions resulting in the issuance of common stock (249,112 and 241,484 shares, respectively)

1,083   1,208
Increase (decrease) in net assets from capital transactions

1,083   1,208
Net increase (decrease) in net assets

2,613   (33,841)
Net Assets      
Beginning of period

71,293   105,134
End of period

$ 73,906   $ 71,293
See Notes to Financial Statements
20


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
STATEMENT OF CASH FLOWS
YEAR ENDED November 30, 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

$ 13,926
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

73,521
(Increase) Decrease in investment securities sold receivable

1,458
Purchases of long-term investments

(63,832)
Increase (Decrease) in investment securities purchased payable

(409)
Net (purchases) or sales of short-term investments

5,955
Net change in unrealized (appreciation)/depreciation on investments

(13,792)
Net change in unrealized (appreciation)/depreciation of forward foreign currency exchange contracts

(172)
Net realized (gain)/loss on investments

10,493
Net realized (gain)/loss on sales of investments from changes in the foreign exchange rates

8
Amortization of premiums and inflation income and accretion of discounts on  investments

(3,313)
(Increase) Decrease in due from broker

76
(Increase) Decrease in tax reclaims receivable

3
(Increase) Decrease in dividends and interest receivable

11
(Increase) Decrease in prepaid expenses and other assets

(11)
(Increase) Decrease in prepaid Trustees’ retainer

6
Increase (Decrease) in interest payable on reverse repurchase agreements

(29)
Increase (Decrease) in over-the-counter swaps at value

(9,644)
Increase (Decrease) in variation margin payable on swap contracts

48
Increase (Decrease) in affiliated expenses payable

(8)
Increase (Decrease) in non-affiliated expenses payable

13
Cash provided by (used for) operating activities

14,308
Cash provided (used for) financing activities:  
Cash receipts from reverse repurchase agreements

156,394
Cash payments for reverse repurchase agreements

(170,822)
Cash distributions paid to shareholders

(11,313)
Cash provided by (used for) financing activities

(25,741)
Net increase (decrease) in cash

(11,433)
Restricted and unrestricted cash at beginning of period

19,984
Restricted and unrestricted cash at end of period

$ 8,551
   
See Notes to Financial Statements
21


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
STATEMENT OF CASH FLOWS (Continued)
YEAR ENDED November 30, 2023
($ reported in thousands)
Supplemental cash flow information:  
Reinvestment of dividends and distributions

$ 1,083
Cash paid during the period for interest expense on reverse repurchase agreements

$ 1,185
   
Reconciliation of restricted and unrestricted cash at the end of period to the statement of assets and liabilities:  
Cash and foreign currency at value

$ 2,309
Cash collateral pledged for swaps

6,242
  $8,551
See Notes to Financial Statements
22


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD
  Year Ended November 30,
  2023    2022   2021   2020   2019
PER SHARE DATA:                  
Net asset value, beginning of period

$ 4.17   $ 6.24   $ 7.04   $ 8.91   $ 10.58
Income (loss) from investment operations:                  
Net investment income (loss)(1)

0.47   0.52   0.60   0.64   0.89
Net realized and unrealized gain (loss)

0.34   (1.87)   (0.52)   (1.08)   (0.40)
Total from investment operations

0.81   (1.35)   0.08   (0.44)   0.49
Dividends and Distributions to Shareholders:                  
Net investment income

(0.66)   (0.09)   (0.57)   (0.28)   (0.76)
Return of capital

(0.06)   (0.63)   (0.31)   (1.15)   (1.40)
Total dividends and distributions to shareholders

(0.72)   (0.72)   (0.88)   (1.43)   (2.16)
Net asset value, end of period

$ 4.26   $ 4.17   $ 6.24   $ 7.04   $ 8.91
Market value, end of period

$ 4.38   $ 4.24   $ 6.65   $ 7.40   $ 13.18
Total return, net asset value(2)

21.20%   (22.31)%   0.36%   (3.32)%   4.45%
Total return, market value(2)

22.14%   (25.98)%   0.66%   (32.92)%   29.86%
RATIOS/SUPPLEMENTAL DATA:                  
Ratio of total expenses after interest expense to average net assets(3)

3.70% (4)   2.95%   2.37%   2.56%   1.97%
Ratio of net investment income (loss) to average net assets

11.21% (4)   10.55%   8.57%   9.04%   8.88%
Portfolio turnover rate

76%   37%   47%   127%   107%
Net assets, end of period (000’s)

$73,906   $71,293   $105,134   $117,235   $146,213
Borrowings, end of period (000’s)

$14,172   $28,600   $ 45,481   $ 46,000   $ 8,976
Asset coverage, per $1,000 of borrowings(5)

$ 6,215   $ 3,493   $ 3,312   $ 3,545   $ 17,290
    
   
(1) Calculated using average shares outstanding.
(2) Total return on market value is calculated assuming a purchase of common shares on the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total return on market value is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not reflected. Total return on market value does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. Total return on net asset value uses the same methodology, but with use of net asset value for the beginning, ending and reinvestment values.
(3) Ratio of total expenses before interest expense to average net assets was 2.11%,  2.03%, 1.96%, 1.99% and 1.59% for the years ended November 30, 2023, 2022, 2021, 2020 and 2019, respectively.
(4) The Fund incurred some non-recurring reorganization expenses in 2023.  When excluding these costs, the ratio of total expenses after interest expense to average net assets would be 3.33% and the ratio of net investment income to average net assets would be 11.58%. 
(5) Represents value of net assets plus the borrowings at the end of the period divided by the borrowings at the end of the period multiplied by $1,000.
See Notes to Financial Statements
23


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS
November 30, 2023
Note 1. Organization
Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) is a closed-end, non-diversified management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund was organized as a Massachusetts business trust on December 22, 2010 pursuant to an Agreement and Declaration of Trust governed by the laws of the Commonwealth of Massachusetts (the “Declaration of Trust”). The Fund’s investment objective is outlined in the Manager’s Discussion of Fund Performance pages. There is no guarantee that the Fund will achieve its investment objective.
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 and for derivatives, included in Note 3 below. 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
24


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
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.
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, Exchange Traded Funds (“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 and futures, 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 (“OTC”) derivative contracts, which include forward currency contracts, swaps, swaptions, options and equity linked instruments, are valued based on model prices provided by independent pricing services or from dealer quotes. Depending on the derivative type and the specific terms of the transaction, these models vary and include observable inputs in actively quoted markets including but not limited to: underlying reference entity details, indices, spreads, interest rates, yield curves, dividend and exchange rates. These instruments are generally categorized as Level 2 in the hierarchy. Centrally cleared swaps listed or traded on a bilateral or trade facility platform, such as a registered exchange, are valued at the last posted settlement price determined by the respective exchange. These securities are generally categorized as Level 2 within the hierarchy.
25


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
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 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. Conversion premium is not amortized.
  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
26


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  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 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.
F. Credit Linked Notes
  The Fund may invest in credit linked notes to obtain economic exposure to high yield, emerging markets or other securities. Investments in a credit linked note typically provide the holder with a return based on the return of an underlying reference instrument, such as an emerging market bond. Like an investment in a bond, investments in credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. In addition to the risks associated with the underlying reference instrument, an investment in a credit linked note is also subject to liquidity risk, market risk, interest rate risk and the risk that the counterparty will be unwilling or unable to meet its obligations under the note.
G. 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.
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
27


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  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 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, and are inclusive of dollar denominated cash, foreign currency, cash collateral pledged for swaps, and deposits with brokers for reverse repurchase agreements.
Note 3. Derivative Financial Instruments and Transactions
($ reported in thousands)
Disclosures about derivative instruments and hedging activities are intended to enable investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the 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.
A. Forward Foreign Currency Exchange Contracts
  A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized appreciation or depreciation. When the contract
28


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of the contract changes unfavorably due to movements in the value of the referenced foreign currencies. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in U.S. dollars without the delivery of foreign currency.
  During the year ended November 30, 2023, the Fund entered into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). Forward foreign currency contracts outstanding at period end, if any, are listed after the Fund’s Schedule of Investments.
B. Swaps
  The Fund enters into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The value of the swap is reflected on the Statement of Assets and Liabilities as “Swaps at value”. Swaps are marked-to-market daily and changes in value are recorded as “Net change in unrealized appreciation (depreciation) on swaps” in the Statement of Operations.
  Any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown under “Swaps at value” in the Statement of Assets and Liabilities and are amortized over the term of the swap. When a swap is terminated, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contracts is the unamortized premium received or paid. Cash settlements between the Fund and the counterparty are recognized as “Net realized gain (loss) on swaps” in the Statement of Operations. Swap contracts outstanding at period end, if any, are listed after the Fund’s Schedule of Investments.
  In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is submitted to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a clearing broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the clearing broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap.
  Securities deposited as margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as “Cash collateral pledged for swaps.”
  Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and
29


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  that there may be unfavorable changes in interest rates and/or market values associated with these transactions.
  Credit default swaps – The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on a combination or basket of single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to any of the referenced entities (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Fund will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. The Fund may enter into credit default swaps to manage their exposure to the market or certain sectors of the market, to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk).
  During the year ended November 30, 2023, the Fund utilized single name credit default swaps to short individual securities or to gain exposure to a credit or asset-backed index.
  The following is a summary of derivative instruments categorized by primary risk exposure, and location as presented in the Statement of Assets and Liabilities as of November 30, 2023:
    
Statement Line Description   Primary Risk  
Liability Derivatives
Over-the-counter swaps at value(1)   Credit contracts $(4,704)  
Total Liabilities     $(4,704)  
   
(1) Represents cumulative appreciation (depreciation) on swap contracts as reported in the Schedule of Investments. For OTC swap contracts, the value (including premiums) at November 30, 2023 is shown in the Statement of Assets and Liabilities.
30


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
The following is a summary of derivative instruments categorized by primary risk exposure, and location as presented in the Statement of Operations for the year ended November 30, 2023:
Statement Line Description   Primary Risk  
Net Realized Gain (Loss) from    
Forward foreign currency exchange contracts   Foreign currency contracts $ (300)  
Swaps   Credit contracts (4,149)  
Total     $ (4,449)  
Net Change in Unrealized Appreciation (Depreciation) on    
Forward foreign currency exchange contracts   Foreign currency contracts $ 172  
Swaps   Credit contracts 6,718  
Total     $ 6,890  
The table below shows the quarterly average volume (unless otherwise specified) of the derivatives held by the Fund for the year ended November 30, 2023.
    
Forward Foreign Currency Exchange Purchase Contracts(1)

$ 498
Forward Foreign Currency Exchange Sale Contracts(1)

1,417
Credit Default Swap Contracts - Sell Protection(1)

27,732
(1)  Average notional amount.
C. Derivative Risks
  A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
  The Fund’s risk of loss from counterparty credit risk on derivatives bought or sold OTC rather than traded on a securities exchange, is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund. For OTC purchased options, the Fund bears the risk of loss of the amount of the premiums paid plus the positive change in market values net of any collateral held by such Fund should the counterparty fail to perform under the contracts. Options written by a Fund do not typically give rise to counterparty credit risk, as options written generally obligate the Fund, and not the counterparty to perform.
  With exchange traded purchased options and futures and centrally cleared swaps generally speaking, there is less counterparty credit risk to the Fund since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency) of the clearing broker or clearinghouse. Additionally, credit risk exists in exchange traded futures and centrally cleared swaps with respect to initial and variation
31


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro-rata basis across all the clearing broker’s customers, potentially resulting in losses to the Fund.
  In order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with its derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.
D. Collateral Requirements and Master Netting Agreements (“MNA”)
  For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
  Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Fund and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it believes have the financial resources to honor its obligations and by monitoring the financial stability of those counterparties.
  For financial reporting purposes, the Fund does not offset derivative assets and liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities.
  The following tables present the Fund’s derivative assets and liabilities and reverse repurchase agreements by counterparty net of amounts available for offset under a
32


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  MNA and net of the related collateral received/pledged by the Fund as of November 30, 2023:
    
At November 30, 2023, the Fund’s derivative assets and liabilities (by type) are as follows:    
  Assets Liabilities
Derivative Financial
Instruments:
   
OTC swaps $— $6,154
Total derivative assets and liabilities in
the Statement of Assets and Liabilities
$— $6,154
Derivatives not subject to a MNA
or similar agreement
Total assets and liabilities
subject to a MNA
$— $6,154
    
Counterparty   Derivatives
Liabilities
Subject to
a MNA by
Counterparty
  Derivatives
Available
for Offset
  Non-cash
Collateral
Pledged
  Cash
Collateral
Pledged(1)
  Net
Amount of
Derivative
Liabilities(1)
Barclays

  $6,154   $—   $—   $(6,154)   $—
Total

  $6,154   $—   $—   $(6,154)   $—
(1) These amounts are limited to the derivatives asset/liability balance and, accordingly, do not include excess collateral received/pledged.
Note 4. Investment Advisory Fees and Related Party Transactions
($ reported in thousands)
A. Investment Adviser
  Virtus Alternative 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 1.00% of the average daily value of the Fund’s total assets (including any assets attributable to any leverage used) minus the Fund’s accrued liabilities (other than the Fund liabilities incurred for any leverage) (“Managed Assets”) provided that the Adviser fee does not exceed 1.50% of the Fund’s net assets.
B. Subadviser
  Virtus Fixed Income Advisers, LLC, an indirect, wholly-owned subsidiary of Virtus, acting through its division, Stone Harbor Investment Partners, is the subadviser to the Fund. The subadviser manages the investments of the Fund, for which it is paid a fee by the Adviser.
33


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
    C. Expense Limitation
  The Adviser has contractually agreed to limit the Fund’s annual total operating expenses, subject to the exclusions listed below, so that such expenses do not exceed, on an annualized basis, 0.58% of average daily net assets through April 10, 2024.  Following the contractual period, the Adviser may discontinue these expense reimbursement arrangements at any time.  The reimbursements are accrued daily and received monthly. 
  The exclusions include investment advisory fees, interest, any other fees or expenses relating to financial leverage, preferred shares (such as dividends on preferred shares, auction agent fees and commissions and rating agency fees) or borrowing (such as interest, commitment, amendment and renewal expenses on credit or redemption facilities), taxes, extraordinary, unusual or infrequently occurring expenses (such as litigation), costs related to share offerings, brokerage commissions, expenses incurred in connection with any merger or reorganization, underlying fund expenses and dividend expenses, if any (each expressed as a percentage of average daily net assets attributable to common shares).
 D. Expense Recapture
  Under certain conditions, the Adviser may recapture operating expenses reimbursed or fees waived under these arrangements within three years after the date on which such amounts were incurred or waived. The Fund must pay its ordinary operating expenses before the Adviser is entitled to any reimbursement and must remain in compliance with any applicable expense limitations or, if none, the expense limitation in effect at the time of the waiver or reimbursement.
  During the year ended November 30, 2023, the Adviser did not recapture expenses. 
E. 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 Administration Agreement, the Fund pays the administrator an asset-based fee calculated on the Fund’s average daily Managed Assets. This fee is calculated daily and paid monthly.
  For the year ended November 30, 2023, the Fund incurred administration fees totaling $93 which are included in the Statement of Operations within the line item “Administration and accounting fees.”
F. Trustees’ Fees
  For the year ended November 30, 2023, the Fund incurred Trustees’ fees totaling $19 which are included in the Statement of Operations within the line item “Trustees’ fees and expenses.”
G. 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
34


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
  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 year ended November 30, 2023, the Fund did not engage in any transactions pursuant to Rule 17a-7 under the 1940 Act.
H. 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 November 30, 2023.
Note 5. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding short-term securities) during the year ended November 30, 2023, were as follows:
Purchases   Sales
$63,832   $73,521
Note 6. Federal Income Tax Information
($ reported in thousands)
At November 30, 2023, the approximate cost basis and aggregate unrealized appreciation (depreciation) of investments and other financial instruments held by the Fund for federal income tax purposes were as follows:
Federal
Tax Cost
  Unrealized
Appreciation
  Unrealized
(Depreciation)
  Net Unrealized
Appreciation
(Depreciation)
$88,968   $2,267   $(11,869)   $(9,602)
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, 2023, the Fund’s capital loss carryovers are as follows:
Short-Term   Long-Term
$55,782   $83,057
35


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
The components of distributable earnings on a tax basis and certain tax attributes for the Fund consist of the following:
Post-October
Capital Loss
Deferred
  Capital Loss
Deferred
$ 2,400   $ 138,839
The differences between the book and tax basis of distributable earnings relate principally to the timing of recognition of income and gains for federal income tax purposes. Short-term gain distributions, if any, are reported as ordinary income for federal tax purposes. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes.
The tax character of dividends and distributions paid during the fiscal years ended November 30, 2023 and 2022 was as follows:
       
  2023   2022
Ordinary Income

$11,445   $ 1,512
Return of Capital

951   10,711
Total

$12,396   $12,223
Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. Permanent reclassifications can arise from differing treatment of certain income and gain transactions and nondeductible current year net operating losses. These adjustments have no impact on net assets or net asset value per share of the Fund. Temporary differences that arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will likely reverse at some time in the future.
Note 7. 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 continued 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 to 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 discontinuation of LIBOR could have a significant impact on the financial markets and may present a material risk for certain market
36


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
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.
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
37


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
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 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 leverages its portfolio through entering into reverse repurchase agreements or the issuance of debt securities. 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 8. Borrowings
($ reported in thousands)
The Fund may borrow from banks and other financial institutions and may also borrow additional funds by entering into reverse repurchase agreements or the issuance of debt securities (collectively, “Borrowings”) in an amount that does not exceed 33 1/3% of the Fund’s Managed Assets (defined in Note 4) immediately after such transactions. It is possible that following such Borrowings, the assets of the Fund will decline due to market conditions such that this 33 1/3% limit will be exceeded. In that case, the leverage risk to Common Shareholders will increase.
In a reverse repurchase agreement, the Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. The Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by the Fund to counterparties are reflected as a liability on the Statement of Assets and Liabilities. Interest payments made by the Fund to counterparties are recorded as a component of interest expense on the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. The Fund will segregate assets determined to be liquid to cover its obligations under reverse repurchase agreements. The segregated assets are found on the Fund’s Schedule of Investments as full or partially pledge securities. The total amount of securities
38


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
pledged at November 30, 2023 was $18,255. As all agreements can be terminated by either party on demand, face value approximates fair value at November 30, 2023. For the year ended November 30, 2023, the average amount of reverse repurchase agreements outstanding was $20,658, at a weighted average interest rate of 5.52%.
The following table indicates the total amount of reverse repurchase agreements, reconciled to gross liability as of November 30, 2023:
  Overnight &
Continuous
Up to 30 days 30-90 days Greater than
90 days
Total
           
Sovereign Debt Obligations $ 6,525 $— $— $— $ 6,525
Corporate Bonds 7,647 7,647
Total $14,172 $— $— $— $14,172
Gross amount of unrecognized liabilities of reverse repurchase agreements $14,172
Note 9.  Indemnifications
Under the Fund’s organizational documents, the Fund, its Trustees and officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide a variety of indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund and that have not occurred. However, the Fund has not had prior claims or losses pursuant to these arrangements and expects the risk of loss to be remote.
Note 10. Capital Shares
At November 30, 2023, the Fund has one class of common stock with $0.001 par value of which unlimited shares are authorized.
Note 11. 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 November 30, 2023, the Fund did not hold any securities that were restricted.
Note 12. 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.
39


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND 
NOTES TO FINANCIAL STATEMENTS (Continued)
November 30, 2023
Note 13. 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 ASU 2020-04 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 14. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were available for issuance, and has determined that the following event requires recognition or disclosure in these financial statements.
On May 22, 2023, shareholders of the Fund approved the issuance of additional common shares in connection with the proposed reorganization of the Virtus Stone Harbor Emerging Markets Total Income Fund (EDI) with and into the Fund. The reorganization was completed as of the close of business on the New York Stock Exchange on Friday, December 15, 2023.
40


Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Virtus Stone Harbor Emerging Markets Income Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) as of November 30, 2023, the related statements of operations and cash flows for the year ended November 30, 2023, the statement of changes in net assets for the year ended November 30, 2023, including the related notes, and the financial highlights for the year ended November 30, 2023 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of November 30, 2023, the results of its operations and its cash flows for the year then ended, the changes in its net assets for the period ended November 30, 2023 and the financial highlights for the period ended November 30, 2023 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year ended November 30, 2022 and the financial highlights for each of the periods ended on or prior to November 30, 2022 (not presented herein, other than the statements of changes in net assets and the financial highlights) were audited by other auditors whose report dated January 27, 2023 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of November 30, 2023 by correspondence with the custodian, transfer agent and brokers; when a reply was not received from a broker, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 24, 2024
We have served as the auditor of one or more of the investment companies in the Virtus group of investment companies since at least 1977. We have not been able to determine the specific year we began serving as auditor.
41


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
TAX INFORMATION NOTICE (Unaudited)
November 30, 2023
The following information ($ reported in thousands) is being provided in order to meet reporting requirements set forth by the Code and/or to meet state specific requirements. In early 2024, the Fund will notify applicable shareholders of amounts for use in preparing 2023 U.S. federal income tax forms. Shareholders should consult their tax advisors.
With respect to distributions paid during the fiscal year ended November 30, 2023, the Fund designates the following amounts (or, if subsequently determined to be different, the maximum amount allowable):
  Qualified Dividend Income %
(for non-corporate shareholders)
  Dividend Received Deduction %
(for corporate shareholders)
  Long-Term
Capital Gain Distributions ($)
  0.00%   0.00%   $0
42


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 Dividend Reinvestment 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.
43


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited)
The Fund’s investment objective is to maximize total return, which consists of income on its investments and capital appreciation. The Fund normally will invest at least 80% of its net assets (plus any borrowings for investment purposes) in Emerging Markets Securities (the “80% policy”). “Emerging Markets Securities” include fixed income securities and other instruments (including derivatives) that are economically tied to emerging market countries, that are denominated in the predominant currency of the local market of an emerging market country or whose performance is linked to those countries’ markets, currencies, economies or ability to repay loans. A security or instrument is economically tied to an emerging market country if it is principally traded on the country’s securities markets or if the issuer is organized or principally operates in the country, derives a majority of its income from its operations within the country or has a majority of its assets within the country.
The Fund considers emerging market countries as those countries identified by the World Bank Group as being “low income economies” or which are included in a J.P. Morgan emerging market bond index. It is anticipated that the Fund will focus most of its investments in Asia, Africa, the Middle East, Latin America and the developing countries of Europe. The Fund’s investments may include, among other things, sovereign debt obligations, corporate debt securities, structured notes, convertible securities, securities issued by supranational organizations, floating rate commercial loans, securitized loan participations, restricted securities, non-U.S. currencies, currency forward contracts and other foreign currency transactions, and derivatives related to or referencing these types of securities and instruments. The Fund may use derivatives to a significant extent for hedging, investment or leverage purposes. Although Emerging Markets Securities may include any derivative or other instrument that provides the Fund exposure to emerging markets, the Fund currently expects that its derivatives transactions or instruments will consist primarily of the following instruments and transactions: credit linked notes, foreign currency forward contracts, credit default swaps, interest rate swaps, total return swaps on individual securities and groups or indices of securities, and interest rate futures contracts and options. The Fund may use these instruments for hedging purposes, for leverage or otherwise to gain, or reduce, long or short exposure to emerging securities markets (for example, credit linked notes may be used to gain exposure to certain emerging markets fixed income securities). Emerging Markets Securities may be denominated in non-U.S. currencies or the U.S. dollar.
The Fund seeks income and capital appreciation through country selection, sector selection, security selection and currency selection. In selecting Emerging Markets Securities for investment, the Fund’s subadviser will apply a market risk analysis contemplating the assessment of various factors, such as liquidity, volatility, tax implications, interest rate sensitivity, counterparty risks, economic factors, currency exchange rates and technical market considerations.
The Fund may invest, without limitation, in debt securities that are rated below investment grade by a nationally recognized statistical rating organization or unrated securities that are deemed to be of comparable quality by the Fund’s subadviser, including defaulted securities. Debt securities rated below investment grade are commonly known as “junk bonds” and are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions.
The Fund’s holdings may range in maturity from overnight to 30 years or more. The Fund’s subadviser does not manage the Fund to have a specific average maturity or duration. The Fund may also invest in currencies, money market and short-term debt securities and cash
44


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited) (Continued)
equivalents, warrants, structured investments or other derivatives, which may be used to maintain exposure of at least 80% of its net assets (plus borrowings for investment purposes) to Emerging Markets Securities. Under certain limited circumstances, the Fund may obtain substantially all of its investment exposure to Emerging Markets Securities through the use of derivatives.
The Fund intends to invest less than 50% of its assets in a single country.
In addition, the Fund may invest the remainder of its assets in securities which will not be used to achieve the Fund’s 80% policy, such as shares of open- and closed-end investment companies, common stocks, bonds and convertible securities.
The Fund’s investment objective and 80% policy are non-fundamental, and may be changed without shareholder approval; however, shareholders will be notified in writing of any material changes to the investment objective or the 80% policy at least 60 days prior to any change. There have been no changes to the Fund’s investment objectives and policies during the reporting period. This information may not reflect all of the changes that have occurred since you purchased the Fund.
The Fund may borrow from banks and other financial institutions and may also borrow additional funds through reverse repurchase agreements or the issuance of debt securities (collectively, “Borrowings”) Under normal market conditions, the Fund intends to leverage the Fund by engaging in Borrowings and/or issuing preferred shares. The aggregate amount of the Fund’s Borrowings and the liquidation value of any preferred shares will generally not exceed 33 1/3% of the Fund’s Managed Assets measured immediately after the transaction giving rise to the leverage. The Fund may also enter into other transactions that are not subject to this 33 1/3% threshold but that may give rise to a form of leverage including, among others, credit default swaps and other derivatives transactions, loans of portfolio securities and when-issued, delayed delivery or forward commitment transactions. At all times, however, the Fund’s use of these transactions will be limited by the Fund’s policies relating to asset segregation and “coverage” of these types of transactions.
Principal Risk Factors
Investing in the Fund involves risks, including the risk that you may receive little or no return on your investment or that you may lose part or even all of your investment.
Non-Diversification: As a non-diversified investment company, the Fund is not limited in the proportion of assets that it may invest in the securities of any one issuer. If the Fund takes concentrated positions in a small number of issuers, the Fund may be more susceptible to the risks associated with those issuers, or to a single economic, political, regulatory or other event affecting those issuers.
Management: The Fund is subject to management risk because it is an actively managed investment portfolio. The subadviser ’s judgments about the attractiveness and potential appreciation of an investment may prove to be inaccurate and may not produce the desired results. The subadviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its decisions will produce the intended result.
Market Volatility: The value of the securities in which the Fund invests may go up or down in response to the prospects of individual issuers and/or general economic conditions. Such price
45


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited) (Continued)
changes may be temporary or may last for extended periods.  Local, regional, or global events such as war (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 portfolio managers to invest the Fund’s assets as intended.
Foreign Investing: Investing in securities of non-U.S. companies involves special risks and considerations not typically associated with investing in U.S. companies, and the values of non-U.S. securities may be more volatile than those of U.S. securities. The values of non-U.S. securities are subject to economic and political developments in countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies, and to changes in currency exchange rates. Values may also be affected by restrictions on receiving the investment proceeds from a non-U.S. country.
In general, less information is publicly available about non-U.S. companies than about U.S. companies. Non-U.S. companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. Certain foreign issuers classified as passive foreign investment companies may be subject to additional taxation risk.
Emerging Market Investing: The risks of foreign investments are generally greater in countries whose markets are still developing than they are in more developed markets. Emerging market countries typically have economic and political systems that are less fully developed, and can be expected to be less stable than those of more developed countries. For example, the economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Since these markets are often small, they may be more likely to suffer sharp and frequent price changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. They may also have policies that restrict investment by foreigners, or that prevent foreign investors from withdrawing their money at will. Certain emerging markets may also face other significant internal or external risks, including the imposition of sanctions, the risk of war and civil unrest. For all of these reasons, investments in emerging markets may be considered speculative. To the extent that the Fund invests a significant portion of its assets in a particular emerging market, the Fund will be more vulnerable to financial, economic, political and other developments in that country, and conditions that negatively impact that country will have a greater impact on the Fund as compared with a fund that does not have its holdings concentrated in a particular country.
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 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 transactions, and negatively impact the Fund’s liquidity and performance.
Currency Rate: Because the foreign securities in which the Fund invests generally trade in currencies other than the U.S. dollar, changes in currency exchange rates will affect the Fund’s net asset value, the value of dividends and interest earned, and gains and losses realized on the sale of securities.  Because the value of the Fund’s shares is calculated in U.S. dollars, it is possible for the Fund to lose money by investing in a foreign security if the local currency of a foreign market depreciates against the U.S. dollar, even if the local currency value of the Fund’s
46


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited) (Continued)
holdings goes up. Generally, a strong U.S. dollar relative to such other currencies will adversely affect the value of the Fund’s holdings in foreign securities.
Foreign Currency Transactions: The Fund may engage in foreign currency transactions, including foreign currency forward contracts, options, swaps and other similar strategic transactions. These transactions may be for the purposes of hedging or efficient portfolio management, or may be for investment purposes, and they may be exchange traded or traded directly with market counterparties. Such transactions may not prove successful or may have the effect of limiting gains from favorable markets movements.
The Fund may use derivatives to acquire positions in various currencies, which presents the risk that the Fund could lose money on its exposure to a particular currency and also lose money on the derivative. The Fund also may take positions in currencies that do not correlate to the currency exposure presented by the Fund’s other investments. As a result, the Fund’s currency exposure may differ, in some cases significantly, from the currency exposure of its other investments and/or its benchmarks.
Sovereign Debt Obligations: When the Fund invests in debt instruments issued by a government outside the U.S., the Fund is exposed to the risks that: (a) the governmental entity that controls the repayment of government debt may not be willing or able to repay the principal and/or to pay the interest when it becomes due, due to factors such as political considerations, the relative size of the governmental entity’s debt position in relation to the economy, cash flow problems, insufficient foreign currency reserves, the failure to put in place economic reforms required by the International Monetary Fund or other multilateral agencies, and/or other national economic factors; (b) the issuing government may default on its debt instruments, which may require holders of such securities to participate in debt rescheduling; and (c) there is no legal or bankruptcy process by which defaulted government debt may be collected in whole or in part.
Credit: There is a risk that the issuer of a debt instrument will fail to pay interest or principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of the instrument to decline. Debt instruments rated below investment-grade are especially susceptible to this risk.
Interest Rate: The values of debt instruments usually rise and fall in response to changes in interest rates. Declining interest rates generally increase the value of existing debt instruments, and rising interest rates generally decrease the value of existing debt instruments. Changes in a debt instrument’s value usually will not affect the amount of interest income paid to the Fund, but will affect the value of the Fund’s shares. Interest rate risk is generally greater for investments with longer maturities.  It is difficult to predict the pace at which central banks or monetary authorities may change interest rates or the timing, frequency, or magnitude of such changes.  Any such changes could be sudden and could expose debt markets to significant volatility and reduced liquidity for investments.
Certain instruments pay interest at variable or floating rates. Variable rate instruments reset at specified intervals, while floating rate instruments reset whenever there is a change in a specified index rate. In most cases, these reset provisions reduce the effect of changes in market interest rates on the value of the instrument. However, some instruments do not track the underlying index directly, but reset based on formulas that can produce an effect similar to leveraging; others may also provide for interest payments that vary inversely with market rates. The market prices of these instruments may fluctuate significantly when interest rates change.
47


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited) (Continued)
Some investments give the issuer the option to call or redeem an investment before its maturity date. If an issuer calls or redeems an investment during a time of declining interest rates, the Fund might have to reinvest the proceeds in an investment offering a lower yield, and therefore it might not benefit from any increase in value as a result of declining interest rates.
Derivatives: Derivative are contracts whose value is derived from the value of an underlying asset, index or rate, including futures, options, non-deliverable forwards, forward foreign currency exchange contracts and swap agreements. The Fund may use derivatives to hedge against factors that affect the value of its investments, such as interest rates and foreign currency exchange rates. The Fund may also utilize derivatives as part of its overall investment technique to gain or lessen exposure to various securities, markets, volatility, dividend payments and currencies.
Derivatives typically involve greater risks than traditional investments. It is generally more difficult to ascertain the risk of, and to properly value, derivative contracts. Many derivatives, and particularly those that are privately negotiated, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to the Fund. The prices of derivatives may move in unexpected ways, especially in abnormal market conditions.  Derivatives are usually less liquid than traditional securities and are subject to counterparty risk (the risk that the other party to the contract will default or otherwise not be able to perform its contractual obligations). In addition, some derivatives transactions may involve potentially unlimited losses.
Derivative contracts entered into for hedging purposes may also subject the Fund to losses if the contracts do not correlate with the assets, indexes or rates they were designed to hedge. Gains and losses derived from hedging transactions are, therefore, more dependent upon the subadviser’s ability to correctly predict the movement of the underlying asset prices, indexes or rates. 
As an investment company registered with the SEC, the Fund is subject to Rule 18f-4 under the 1940 Act, which applies to the Fund’s use of derivative investments and certain financing transactions (e.g., reverse repurchase agreements). Among other things, Rule 18f-4 requires a fund to apply a value-at-risk based limit to its use of certain derivative instruments and financing transactions and to adopt and implement a derivatives risk management program. The application of Rule 18f-4 to the Fund could restrict the Fund’s ability to utilize derivative investments and financing transactions and prevent the Fund from implementing its principal investment strategies as described herein, which may result in changes to the Fund’s principal investment strategies and could adversely affect the Fund’s performance and its ability to achieve its investment objective. Governments, agencies and/or other regulatory bodies may further adopt or change laws or regulations that could adversely affect the Fund’s ability to invest in derivatives as the Fund’s subadviser intends.
There are also special tax rules applicable to certain types of derivatives, which could affect the amount, timing and character of the Fund’s income or loss and hence of its distributions to shareholders by causing holding period adjustments, converting short-term capital losses into long-term capital losses, and accelerating the Fund’s income or deferring its losses. The Fund’s use of derivatives may also increase the amount of taxes payable by shareholders or the resources required by the Fund or its adviser and/or subadviser to comply with particular regulatory requirements.
48


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
INVESTMENT OBJECTIVE, PRINCIPAL STRATEGIES AND PRINCIPAL RISKS (Unaudited) (Continued)
Reverse Repurchase Agreements: The Fund may generate leverage by entering into reverse repurchase agreements, under which the Fund sells portfolio securities to financial institutions such as banks and broker-dealers and agrees to repurchase them at a particular date and price.  Such agreements, which are in effect collateralized borrowings by the Fund, are considered to be senior securities under Investment Company Act of 1940, as amended unless the Fund designates on its books and records an amount of assets equal to the amount of the Fund’s obligations under the reverse repurchase agreements.
Counterparty: When the Fund engages in investment techniques in which it relies on another party to consummate the transaction, the Fund is subject to the risk of default by the other party.  To the extent that the Fund enters into multiple transactions with a single or limited number of counterparties, the Fund will be subject to increased levels of counterparty risk.
High Yield Fixed Income Securities:  Securities rated below the four highest rating categories of a nationally recognized statistical rating organization, may be known as “high-yield” securities and commonly referred to as “junk bonds.” The highest of the ratings among these nationally recognized statistical rating organizations is used to determine the security’s classification. Such securities entail greater price volatility and credit and interest rate risk than investment-grade securities. Analysis of the creditworthiness of high-yield/high-risk issuers is more complex than for higher-rated securities, making it more difficult for the Fund’s subadviser to accurately predict risk. There is a greater risk with high-yield/high-risk fixed income securities that an issuer will not be able to make principal and interest payments when due. If the Fund pursues missed payments, there is a risk that the Fund’s expenses could increase. In addition, lower-rated securities may not trade as often and may be less liquid than higher-rated securities, especially during periods of economic uncertainty or change. As a result of all of these factors, these bonds are generally considered to be speculative.
Leverage: Although the Fund presently intends to utilize leverage, there can be no assurance that the Fund will do so, or that, if utilized, it will be successful during any period in which it is employed. The use of leverage by the Fund would result in more risk to the Fund’s shareholders than if leverage had not been used and can magnify the effect of any losses. If the income and gains earned on securities to which the Fund has exposure through the use of leverage are greater than the Fund’s costs of borrowing, the costs of derivatives transactions used to generate leverage the Fund’s returns will be greater than if leverage had not been used. Conversely, if the income and gains from those securities do not cover the payments due in connection with the leverage used, the return will be less than if the economic leverage had not been used. The expenses of a borrowing program and/or of a derivatives transaction will be borne by shareholders and, consequently, will result in a reduction of the NAV of the Fund’s common shares.  During periods in which the Fund is using leverage, the fees paid by the Fund for investment advisory and administrative services will be higher than if the Fund did not use leverage, as such fees will be calculated on the basis of the Fund’s managed assets, which includes assets attributable to borrowings.
Closed-End Fund: Closed-end funds may trade at a discount or premium from their net asset values, which may affect whether an investor will realize gains or losses. They may also employ leverage, which may increase volatility.
No Guarantee: There is no guarantee that the Fund will meet its objective.
49


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
Dividend Reinvestment Plan (Unaudited)
Unless the registered owner of Common Shares elects to receive cash by contacting Computershare (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares, which may result in a higher cost to such shareholders as compared to shareholders who participate in the Plan.
The Plan Administrator will open an account for each Common Shareholder under the Plan in the same name in which such Common Shareholder’s Common Shares are registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.
In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period,
50


VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND
Dividend Reinvestment Plan
(Unaudited) (Continued)
the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the Plan.
The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.
In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.
The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.
All correspondence or questions concerning the Plan should be directed to the Plan Administrator at 1-866-270-7788.
51


CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND (Unaudited)
The Board of Trustees (the “Board”) of Virtus Stone Harbor Emerging Markets Income Fund (the “Fund”) is responsible for determining whether to approve the continuation of the investment advisory agreement (the “Advisory Agreement”) between the Fund and Virtus Alternative Investment Advisers, Inc. (“VAIA”) and the continuation of the subadvisory agreement (the “Subadvisory Agreement” and, together with the Advisory Agreement, the “Agreements”) with Virtus Fixed Income Advisers, LLC, acting through its division Stone Harbor Investment Partners (the “Subadviser”). At a meeting held on November 1, 2023, in a virtual meeting format, and at an in-person meeting held on November 14-15, 2023 (the “Meetings”), the Board, including a majority of the Trustees who are not interested persons, as defined in the Investment Company Act of 1940, as amended (the “1940 Act”), of the Fund (the “Independent Trustees”) considered and approved the continuation of each Agreement, as further discussed below.
In connection with the approval of the Agreements, the Board requested and evaluated information provided by VAIA and the Subadviser which, in the Board’s view, constituted information necessary for the Board to evaluate each of the Agreements. The Board also considered information furnished throughout the year at regular Board meetings with respect to the services provided by VAIA and the Subadviser, including quarterly performance reports prepared by management containing reviews of investment results and periodic presentations from the Subadviser with respect to the Fund. The Board noted the affiliation of the Subadviser with VAIA and any potential conflicts of interest.
The Board was separately advised by independent legal counsel throughout the process. For each Agreement, the Board considered all the criteria separately with respect to the Fund and its shareholders. The Board considered all factors that it considered relevant, including those discussed below. The Board did not identify any one factor as all-important or controlling, and each Trustee may have attributed different weights to the various factors. The Independent Trustees also discussed the proposed approval of the Agreements in executive sessions with their independent legal counsel at which no representatives of VAIA or the Subadviser were present.
Nature, Extent and Quality of Services
The Trustees received in advance of the Meetings various data and information regarding the nature, extent and quality of the services provided under the Agreements, including responses by VAIA and the Subadviser to detailed requests submitted by independent legal counsel to the Independent Trustees on their behalf, as well as responses by VAIA and the Subadviser to follow-up questions. The Trustees also previously had received presentations by VAIA’s and the Subadviser’s senior management personnel. The responses to the information requests and the presentations included, among other things, information about the: background, experience and investment philosophy of senior management and investment personnel responsible for managing the Fund; resources, operations and compliance structure of VAIA and the Subadviser; and investment process, investment strategies, personnel, compliance procedures, and overall performance of VAIA and the Subadviser.
In considering the Agreement with VAIA, the Board considered VAIA’s process for supervising and managing the Subadviser, including: (a) VAIA’s ability to select and monitor the Subadviser; (b) VAIA’s ability to provide the services necessary to monitor the Subadviser’s compliance with the Fund’s investment objective, policies and restrictions, as well as to provide other oversight activities; and (c) VAIA’s ability and willingness to identify instances in which the
52


CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
Subadviser should be replaced and to carry out the required changes. The Trustees also considered: (a) the experience and capability of VAIA’s management and other personnel; (b) the financial condition of VAIA, and whether it had the financial wherewithal to continue to provide a high level and quality of services to the Fund; (c) the quality of VAIA’s own regulatory and legal compliance policies, procedures and systems; (d) the nature, extent and quality of administrative and other services provided by VAIA and its affiliates to the Fund; (e) VAIA’s supervision of the Fund’s other service providers; and (f) VAIA’s risk management processes. It was noted that an affiliate of VAIA serves as administrator to the Fund. The Board also took into account its knowledge of VAIA’s management and the quality of the performance of VAIA’s duties, as well as information from the Fund’s Chief Compliance Officer regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act.
With respect to the services provided by the Subadviser, the Board considered information provided to the Board by the Subadviser, as well as information provided throughout the past year. The Board noted that the Subadviser provided portfolio management, compliance with the Fund’s investment policies and procedures, compliance with applicable securities laws and assurances thereof. The Board also noted that VAIA’s and the Subadviser’s management of the Fund must be carried out in accordance with the Fund’s investment objective, policies and restrictions. The Board considered the Subadviser’s portfolio management services, including: (a) the scope of its operations; (b) its portfolio management capabilities; (c) the breadth and depth of its management, investment and research personnel; and (d) the various support services that it provides to the Fund. The Board considered the investment management process and strategies employed by the Subadviser, and experience and capability of the Subadviser’s management and other personnel committed by the Subadviser to the Fund. The Board also considered: (a) the quality of the Subadviser’s regulatory and legal compliance policies, procedures and systems; and (b) the Subadviser’s brokerage and trading practices, including with respect to best execution and soft dollars. The Board also took into account the Subadviser’s risk assessment and monitoring process.    
Investment Performance
The Board considered performance reports and discussions at Board meetings throughout the year, as well as a report (the “Broadridge Report”) for the Fund prepared by Broadridge Financial Solutions, Inc., an independent third party provider of investment company data, furnished in connection with the contract renewal process. The Broadridge Report presented the Fund’s performance relative to a peer group of other closed-end funds (the “Performance Universe”) and relevant indexes, as selected by Broadridge. The Board also considered performance information presented by management and took into account management’s discussion of the same, including the effect of market conditions on the Fund’s performance. The Board noted that it also reviews on a quarterly basis detailed information about both the Fund’s performance results and portfolio composition, as well as the Subadviser’s investment strategies. The Board noted VAIA’s expertise and resources in monitoring the performance, investment style and risk-adjusted performance of the Subadviser. The Board also took into account its discussions with management regarding factors that contributed to the performance of the Fund.
The Board noted that the Fund underperformed the median of its Performance Universe for the 1-, 5-, and 10-year periods ended March 31, 2023 and outperformed the median of its Performance Universe for the year-to-date and 3-year periods ended March 31, 2023. The Board also noted that the Fund underperformed its benchmark for the 1-, 5-, and 10-year
53


CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
periods ended March 31, 2023 and outperformed its benchmark for the year-to-date and 3-year periods ended March 31, 2023. The Trustees discussed the Fund’s performance and the reasons therefor with management.
Management Fees and Total Expenses
The Board considered the fees charged to the Fund for advisory services as well as the total expense level of the Fund. This information included comparisons of the Fund’s contractual and net management fee and net total expense level to those of its peer universe (the “Expense Universe”). In comparing the Fund’s net management fee to that of comparable funds, the Board noted that in the materials presented by management such fee was comprised of advisory fees. The Board also noted that the subadvisory fees were paid by VAIA out of its management fees rather than paid separately by the Fund. In this regard, the Board took into account management’s discussion with respect to the advisory/subadvisory fee structure, including the amount of the advisory fee retained by VAIA after payment of the subadvisory fee. The Trustees also considered the fee rates payable by comparable accounts managed by the Subadviser.
In addition to the foregoing, the Board considered, among other data, the information set forth below with respect to the Fund’s fees and expenses. The Board took into account management’s discussion of the Fund’s expenses, including the type and size of the Fund relative to the other funds in its Expense Universe.
The Board noted that the Fund’s net management fees and net total expenses were above the medians of the Expense Universe.
Profitability
The Board also considered certain information relating to profitability that had been provided by VAIA. In this regard, the Board considered information regarding the overall profitability of VAIA for its management of the Fund. In addition to the fees paid to VAIA and its affiliates, including the Subadviser, the Board considered other benefits derived by VAIA or its affiliates from their relationships with the Fund. The Board reviewed the methodology used to allocate costs to the Fund, taking into account the fact that allocation methodologies are inherently subjective and various allocation methodologies may each be reasonable while producing different results. The Board concluded that the profitability to VAIA and its affiliates from the Fund was within a reasonable range in light of the quality of the services rendered to the Fund by VAIA and its affiliates, and other factors considered.
In considering the profitability to the Subadviser in connection with its relationship to the Fund, the Board noted that the fee payable under the Subadvisory Agreement is paid by VAIA out of the fee that VAIA receives under the Advisory Agreement, and not by the Fund. In considering the fee payable by VAIA to the Subadviser, the Board noted that, because the Subadviser is an affiliate of VAIA, its profitability should be considered as part of the profitability of VAIA and, therefore, the Board considered the profitability of VAIA and the Subadviser together. For each of the above reasons, the Board concluded that the separate profitability to the Subadviser and its affiliates from their relationships with the Fund was not a material factor in approval of the Subadvisory Agreement.
54


CONSIDERATION OF ADVISORY AND SUBADVISORY AGREEMENTS
BY THE BOARD OF TRUSTEES OF VIRTUS STONE HARBOR
EMERGING MARKETS INCOME FUND (Unaudited) (Continued)
Economies of Scale
The Board considered the extent to which economies of scale would be realized as the Fund’s assets grow, and whether the fee levels reflect these economies of scale for the benefit of Fund shareholders. The Board noted that economies of scale may develop for certain funds as their assets increase and their fixed fund-level expenses decline as a percentage of assets, but that closed-end funds such as the Fund typically do not have the ability to increase substantially their asset base as do open-end funds.
The Board also considered the advisory fee rate in relation to the current asset size of the Fund, and whether any economies of scale exist at that size. The Board concluded that, given the Fund’s closed-end structure, no changes to the Fund’s advisory and subadvisory fee structure were necessary or advisable at this time. The Board agreed that it would be appropriate to monitor this matter in the event that the assets of the Fund were to increase substantially via a secondary or rights offering, capital appreciation, reinvested dividends, the use of increased leverage or some other means.
Other Factors
The Board considered information regarding potential “fallout” or ancillary benefits that may be realized by VAIA, the Subadviser and their respective affiliates as a result of their relationships with the Fund. The Board noted that an affiliate of VAIA provides administrative services to the Fund. The Board noted management’s discussion of the fact that, while the Subadviser is an affiliate of VAIA, there are no other direct benefits received by the Subadviser or VAIA in providing investment advisory services to the Fund, other than the fees earned under the respective Agreement.
The Trustees concluded that potential “fallout” benefits that VAIA and the Subadviser may receive, such as greater name recognition or increased ability to obtain research and brokerage services, as applicable, may, in some cases, benefit the Fund.
Conclusion
After considering all factors that it considered relevant, the Board, including a majority of the Independent Trustees, approved the Agreements with respect to the Fund.
55


FUND MANAGEMENT TABLES (Unaudited)
Information pertaining to the Trustees and Officers of the Fund as of the date of the issuance of this report is set forth below. The address of each individual, unless otherwise noted, is c/o Virtus Stone Harbor Emerging Markets Income Fund, One Financial Plaza, Hartford, CT 06103.
Independent Trustees
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
Burke, Donald C.
YOB: 1960
Served Since: 2022, Class II
100 Portfolios
Private investor (since 2009). Formerly, President and Chief Executive Officer, BlackRock U.S. Funds (2007 to 2009); Managing Director, BlackRock, Inc. (2006 to 2009); and Managing Director, Merrill Lynch Investment Managers (1990 to 2006). Trustee (since May 2023) and Advisory Board Member (May 2023), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity & Convertible Income Fund; Advisory Board Member (since May 2023), Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II and Virtus Diversified Income & Convertible Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (50 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2014) closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director, Avista Corp. (energy company) (since 2011); Trustee, Goldman Sachs Fund Complex (2010 to 2014); and Director, BlackRock Luxembourg and Cayman Funds (2006 to 2010).
56


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
Cogan, Sarah E.
YOB: 1956
Served Since: 2022, Class II
97 Portfolios
Retired Partner, Simpson Thacher & Bartlett LLP (“STB”) (law firm) (since 2019); Director, Girl Scouts of Greater New York (since 2016); Trustee, Natural Resources Defense Council, Inc. (since 2013); and formerly, Partner, STB (1989 to 2018). Trustee (since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee (since 2019), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund; and Trustee (since 2019), PIMCO Closed-End Funds* (30 portfolios).
DeCotis, Deborah A.
YOB: 1952
Served Since: 2022, Class I
97 Portfolios
Director, Cadre Holdings Inc. (since 2022); Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); Member, Council on Foreign Relations (since 2013); and Trustee, Smith College (since 2017). Formerly, Director, Watford Re (2017 to 2021); Co-Chair Special Projects Committee, Memorial Sloan Kettering (2005 to 2015); and Trustee, Stanford University (2010 to 2015). Trustee (since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios) and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2017), Virtus Convertible & Income 2024 Target Term Fund; Trustee (since 2015), Virtus Diversified Income & Convertible Fund; Trustee (since 2014), Virtus Investment Trust (13 portfolios); Trustee (since 2011), Virtus Strategy Trust (8 portfolios); Trustee (since 2011), Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Equity & Convertible Income Fund, and Virtus Dividend, Interest & Premium Strategy Fund; and Trustee (since 2011), PIMCO Closed-End Funds* (30 portfolios).
57


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
Drummond, F. Ford
YOB: 1962
Served Since: 2022, Class III
97 Portfolios
President (since 1998), F.G. Drummond Ranches, Inc.; and Director (since 2015), Texas and Southwestern Cattle Raisers Association. Formerly, Chairman, Oklahoma Nature Conservancy (2019 to 2020); Trustee (since 2014), Frank Phillips Foundation; Trustee (since 2008), Oklahoma Nature Conservancy; Board Member (2006 to 2020) and Chairman (2016 to 2018), Oklahoma Water Resources Board; Director (1998 to 2008), The Cleveland Bank; and General Counsel (1998 to 2008), BMIHealth Plans (benefits administration). Trustee (since 2022) and Advisory Board Member (2021 to 2022), Virtus Alternative Solutions Trust (4 portfolios), Virtus Mutual Fund Family (50 portfolios), and Virtus Variable Insurance Trust (8 portfolios); Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), and Virtus Global Multi-Sector Income Fund; Director (since 2021), Virtus Total Return Fund Inc.; Advisory Board Member (February 2021 to June 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2019), Virtus Artificial Intelligence & Technology Opportunities Fund; Trustee (since 2017), Virtus Convertible & Income 2024 Target Term Fund; Trustee (since 2015), Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity & Convertible Income Fund; Trustee (since 2014), Virtus Strategy Trust (8 portfolios); Director (since 2011), Bancfirst Corporation; and Trustee (since 2006), Virtus Investment Trust (13 portfolios).
Harris, Sidney E.
YOB: 1949
Served Since: 2022, Class III
90 Portfolios
Private Investor (since 2021); Dean Emeritus (since 2015), Professor (2015 to 2021 and 1997 to 2014), and Dean (1997 to 2004), J. Mack Robinson College of Business, Georgia State University. Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2019), Mutual Fund Directors Forum; Trustee (since 2017), Virtus Mutual Fund Family (50 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (4 portfolios); Trustee (2013 to 2020) and Honorary Trustee (since 2020), KIPP Metro Atlanta; Director (1999 to 2019), Total System Services, Inc.; Trustee (2004 to 2017), RidgeWorth Funds; Chairman (2012 to 2017), International University of the Grand Bassam Foundation; Trustee (since 2012), International University of the Grand Bassam Foundation; and Trustee (2011 to 2015), Genspring Family Offices, LLC.
58


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
Mallin, John R.
YOB: 1950
Served Since: 2022, Class I
90 Portfolios
Partner/Attorney (since 2003), McCarter & English LLP (law firm) Real Property Practice Group; and Member (2014 to 2022), Counselors of Real Estate. Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016), Virtus Mutual Fund Family (50 portfolios) and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2019), 1892 Club, Inc. (non-profit); Director (2013 to 2020), Horizons, Inc. (non-profit); and Trustee (since 1999), Virtus Variable Insurance Trust (8 portfolios).
McDaniel, Connie D.
YOB: 1958
Served Since: 2022, Class II
97 Portfolios
Retired (since 2013). Vice President, Chief of Internal Audit, Corporate Audit Department (2009 to 2013); Vice President Global Finance Transformation (2007 to 2009); and Vice President and Controller (1999 to 2007), The Coca-Cola Company. Trustee (since May 2023) and Advisory Board Member (May 2023), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income 2024 Target Term Fund, Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Dividend, Interest & Premium Strategy Fund and Virtus Equity & Convertible Income Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Director (since 2019), Global Payments Inc.; Chairperson (since 2021), Governance & Nominating Committee, Global Payments Inc.; Trustee (since 2017), Virtus Mutual Fund Family (50 portfolios), Virtus Variable Insurance Trust (8 portfolios), and Virtus Alternative Solutions Trust (4 portfolios); Director (since 2021), North Florida Land Trust; Director (2014 to 2019), Total System Services, Inc.; Member (2011 to 2022) and Chair (2014 to 2016), Georgia State University, Robinson College of Business Board of Advisors; and Trustee (2005 to 2017), RidgeWorth Funds.
59


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
McLoughlin, Philip R.
YOB: 1946
Served Since: 2022, Class III 
Chairman
100 Portfolios
Private investor since 2010. Trustee and Chairman (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee and Chairman (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee and Chairman (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Chairman (since 2023) and Trustee (since 2021), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund, Virtus Equity & Convertible Income Fund and Virtus Dividend, Interest & Premium Strategy Fund; Chairman (since 2023), Trustee (since 2022) and Advisory Board Member (2021), Virtus Convertible & Income 2024 Target Term Fund and Virtus Convertible & Income Fund; Director and Chairman (since 2016), Virtus Total Return Fund Inc.; Director and Chairman (2016 to 2019), the former Virtus Total Return Fund Inc.; Director and Chairman (2014 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee and Chairman (since 2013), Virtus Alternative Solutions Trust (4 portfolios); Trustee and Chairman (since 2011), Virtus Global Multi-Sector Income Fund; Chairman and Trustee (since 2003), Virtus Variable Insurance Trust (8 portfolios); Director (since 1995), closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); Director (1991 to 2019) and Chairman (2010 to 2019), Lazard World Trust Fund (closed-end investment firm in Luxembourg); and Trustee (since 1989) and Chairman (since 2002), Virtus Mutual Fund Family (50 portfolios).
60


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
McNamara, Geraldine M.
YOB: 1951
Served Since: 2022, Class III
100 Portfolios
Private investor (since 2006); and Managing Director, U.S. Trust Company of New York (1982 to 2006). Trustee (since May 2023) and Advisory Board Member (January 2023 to May 2023), Virtus Convertible & Income Fund, Virtus Convertible & Income Fund II, Virtus Diversified Income & Convertible Fund and Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since 2023), Virtus Artificial Intelligence & Technology Opportunities Fund and Virtus Equity & Convertible Income Fund; Advisory Board Member (since 2023), Virtus Convertible & Income 2024 Target Term Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Director (2020 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Director (since 2020), Virtus Total Return Fund Inc.; Trustee (since 2020), Virtus Global Multi-Sector Income Fund; Trustee (since 2016) Virtus Alternative Solutions Trust (4 portfolios); Trustee (since 2015), Virtus Variable Insurance Trust (8 portfolios); Director (since 2003), closed-end funds managed by Duff & Phelps Investment Management Co. (3 funds); and Trustee (since 2001), Virtus Mutual Fund Family (50 portfolios).
61


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years Other Trusteeships Held by Trustee
Walton, R. Keith
YOB: 1964
Served Since: 2022, Class I
97 Portfolios
Senior Adviser (since 2022), Brightwood Capital LLC; Venture and Operating Partner (2020 to 2021), Plexo Capital, LLC; Venture Partner (2019 to 2021) and Senior Adviser (2018 to 2019), Plexo, LLC; and Partner (since 2006), Global Infrastructure Partners. Formerly, Managing Director (2020 to 2021), Lafayette Square Holding Company LLC; Senior Adviser (2018 to 2019), Vatic Labs, LLC; Executive Vice President, Strategy (2017 to 2019), Zero Mass Water, LLC; and Vice President, Strategy (2013 to 2017), Arizona State University. Trustee (since September 2023) and Advisory Board Member (2022 to September 2023), Virtus Convertible & Income 2024 Target Term Fund; Trustee (since May 2023) and Advisory Board Member (2022 to May 2023), Virtus Convertible & Income Fund II and Virtus Dividend, Interest & Premium Strategy Fund; Trustee (since July 2022) and Advisory Board Member (January 2022 to July 2022), Virtus Artificial Intelligence & Technology Opportunities Fund, Virtus Convertible & Income Fund and Virtus Equity & Convertible Income Fund; Trustee (since 2022), Virtus Stone Harbor Emerging Markets Income Fund; Trustee (2022 to 2023), Virtus Stone Harbor Emerging Markets Total Income Fund; Trustee (since 2022), Virtus Diversified Income & Convertible Fund; Trustee (since 2021), The Merger Fund®, The Merger Fund® VL, Virtus Event Opportunities Trust (2 portfolios), Virtus Investment Trust (13 portfolios) and Virtus Strategy Trust (8 portfolios); Trustee (since 2020) Virtus Alternative Solutions Trust (4 portfolios), Virtus Variable Insurance Trust (8 portfolios) and Virtus Mutual Fund Family (50 portfolios); Director (since 2017), certain funds advised by Bessemer Investment Management LLC; Director (2016 to 2021), Duff & Phelps Select MLP and Midstream Energy Fund Inc.; Trustee (since 2016), Virtus Global Multi-Sector Income Fund; Director (2006 to 2019), Systematica Investments Limited Funds; Director (2006 to 2017), BlueCrest Capital Management Funds; Trustee (2014 to 2017), AZ Service; Director (since 2004), Virtus Total Return Fund Inc.; and Director (2004 to 2019), the former Virtus Total Return Fund Inc.
62


FUND MANAGEMENT TABLES (Unaudited) (Continued)
Name, Year of Birth,
Length of Time Served,
and Number of
Portfolios in Fund
Complex Overseen by
Trustee
Principal Occupation(s) During Past 5 Years