STATEMENTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI
Artificial Intelligence &
Technology
Opportunities Fund
|
|
|
Virtus AllianzGI
Convertible & Income
2024 Target
Term Fund
|
|
|
Investment Income:
|
|
|
Interest
|
|
$
|
3,660,066
|
|
|
$
|
10,236,628
|
|
|
Dividends (net of foreign withholding taxes of $22,262 and $0, respectively)
|
|
|
5,345,720
|
|
|
|
—
|
|
|
Miscellaneous
|
|
|
7
|
|
|
|
173,398
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
|
9,005,793
|
|
|
|
10,410,026
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
Investment advisory fees
|
|
|
10,478,468
|
|
|
|
1,834,372
|
|
|
Administration fees
|
|
|
80,668
|
|
|
|
20,426
|
|
|
Excise tax
|
|
|
414,663
|
|
|
|
134,593
|
|
|
Professional fees
|
|
|
248,512
|
|
|
|
138,864
|
|
|
Custodian and accounting agent
|
|
|
133,079
|
|
|
|
114,622
|
|
|
Interest expense on loan (Note 8)
|
|
|
206,506
|
|
|
|
677,574
|
|
|
Trustees’ fees and expenses
|
|
|
91,614
|
|
|
|
18,709
|
|
|
Printing fees and expenses
|
|
|
79,096
|
|
|
|
34,636
|
|
|
Transfer agent fees and expenses
|
|
|
25,200
|
|
|
|
25,200
|
|
|
Miscellaneous expenses
|
|
|
45,490
|
|
|
|
27,082
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
11,803,296
|
|
|
|
3,026,078
|
|
|
Less: Reimbursement from Investment Adviser
|
|
|
(94,371
|
)
|
|
|
(25,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Expenses
|
|
|
11,708,925
|
|
|
|
3,001,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income (Loss)
|
|
|
(2,703,132
|
)
|
|
|
7,408,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Change in Unrealized Gain (Loss):
|
|
|
Net realized gain on investments
|
|
|
171,686,658
|
|
|
|
11,108,637
|
|
|
Net change in unrealized appreciation/depreciation of investments
|
|
|
236,027,418
|
|
|
|
7,246,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and change in unrealized gain
|
|
|
407,714,076
|
|
|
|
18,355,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Resulting from operations
|
|
|
405,010,944
|
|
|
|
25,763,972
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
54
STATEMENTS OF OPERATIONS (Continued)
YEAR ENDED FEBRUARY 28, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI
Convertible &
Income Fund
|
|
|
Virtus AllianzGI
Convertible &
Income Fund II
|
|
|
Investment Income:
|
|
|
Interest
|
|
$
|
30,466,126
|
|
|
$
|
23,441,031
|
|
|
Dividends (net of foreign withholding taxes of $13,787 and $10,436, respectively)
|
|
|
9,957,678
|
|
|
|
7,556,939
|
|
|
Miscellaneous
|
|
|
11,517
|
|
|
|
8,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Income
|
|
|
40,435,321
|
|
|
|
31,006,820
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
Investment advisory fees
|
|
|
5,796,917
|
|
|
|
4,417,267
|
|
|
Administration fees
|
|
|
72,684
|
|
|
|
55,318
|
|
|
Interest expense on loan
|
|
|
280,474
|
|
|
|
—
|
|
|
Auction agent and commissions
|
|
|
219,990
|
|
|
|
168,080
|
|
|
Custodian and accounting agent
|
|
|
129,050
|
|
|
|
112,184
|
|
|
Professional fees
|
|
|
243,361
|
|
|
|
253,355
|
|
|
Printing fees and expenses
|
|
|
95,964
|
|
|
|
84,131
|
|
|
Trustees’ fees and expenses
|
|
|
50,712
|
|
|
|
38,292
|
|
|
Transfer agent fees and expenses
|
|
|
29,241
|
|
|
|
29,241
|
|
|
Miscellaneous expenses
|
|
|
113,856
|
|
|
|
119,886
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
7,032,249
|
|
|
|
5,277,754
|
|
|
Less: Reimbursement from Investment Adviser
|
|
|
(106,841
|
)
|
|
|
(97,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net Expenses
|
|
|
6,925,408
|
|
|
|
5,180,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
33,509,913
|
|
|
|
25,826,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized and Change in Unrealized Gain (Loss):
|
|
|
Net realized gain on investments
|
|
|
3,663,863
|
|
|
|
2,875,400
|
|
|
Net change in unrealized appreciation/depreciation of:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
118,355,102
|
|
|
|
89,181,228
|
|
|
Investments in Affiliates
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and change in unrealized gain
|
|
|
122,018,957
|
|
|
|
92,056,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets resulting from operations
|
|
|
155,528,870
|
|
|
|
117,883,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from Net Investment Income
|
|
|
(6,245,418
|
)
|
|
|
(6,447,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment
Operations
|
|
|
149,283,452
|
|
|
|
111,435,128
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements
55
STATEMENTS OF CHANGES IN NET ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI Artificial Intelligence &
Technology Opportunities Fund
|
|
|
|
|
Year ended
February 28,
2021
|
|
|
Period
from
October 31, 2019*
through
February 29,
2020
|
|
|
Increase (Decrease) in Net Assets from Operations:
|
|
|
Net investment income (loss)
|
|
$
|
(2,703,132
|
)
|
|
$
|
(339,951
|
)
|
|
Net realized gain
|
|
|
171,686,658
|
|
|
|
31,371,579
|
|
|
Net change in unrealized appreciation/depreciation
|
|
|
236,027,418
|
|
|
|
(23,523,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
|
405,010,944
|
|
|
|
7,507,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Shareholders
|
|
|
(85,438,632
|
)
|
|
|
(11,154,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Capital Share Transactions:
|
|
|
Net proceeds from shares issued in offering
|
|
|
449,443
|
|
|
|
686,362,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase in net assets
|
|
|
320,021,755
|
|
|
|
682,716,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
682,816,020
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
1,002,837,775
|
|
|
$
|
682,816,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital share transactions:
|
|
|
Shares outstanding, beginning of period
|
|
|
34,323,135
|
|
|
|
5,000
|
|
|
Shares issued
|
|
|
—
|
|
|
|
34,318,135
|
|
|
Shares issued for reinvestment of distributions
|
|
|
15,547
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding, end of period
|
|
|
34,338,682
|
|
|
|
34,323,135
|
|
|
*
|
Commencement of operations.
|
|
–
|
May reflect actual amounts rounding to less than $1.
|
See Notes to Financial Statements
56
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI Convertible & Income 2024
Target Term Fund
|
|
|
|
|
Year ended
February 28,
2021
|
|
|
Year ended
February 29,
2020
|
|
|
Increase (Decrease) in Net Assets from Operations:
|
|
|
Net investment income
|
|
$
|
7,408,952
|
|
|
$
|
7,800,171
|
|
|
Net realized gain
|
|
|
11,108,637
|
|
|
|
3,582,892
|
|
|
Net change in unrealized appreciation/depreciation
|
|
|
7,246,383
|
|
|
|
1,283,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
|
25,763,972
|
|
|
|
12,666,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Shareholders
|
|
|
(10,078,494
|
)
|
|
|
(10,077,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From Capital Transactions:
|
|
|
Issued in reinvestment of distributions
|
|
|
13,559
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets
|
|
|
15,699,037
|
|
|
|
2,588,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
179,907,357
|
|
|
|
177,319,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
195,606,394
|
|
|
$
|
179,907,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital share Transactions:
|
|
|
Shares outstanding, beginning of year
|
|
|
18,257,012
|
|
|
|
18,257,012
|
|
|
Shares issued for reinvestment of distributions
|
|
|
1,504
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding, end of year
|
|
|
18,258,516
|
|
|
|
18,257,012
|
|
|
–
|
May reflect actual amounts rounding to less than $1.
|
See Notes to Financial Statements
57
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI Convertible &
Income Fund
|
|
|
|
|
Year ended
February 28,
2021
|
|
|
Year ended
February 29,
2020
|
|
|
Increase (Decrease) in Net Assets from Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
33,509,913
|
|
|
$
|
47,085,743
|
|
|
Net realized gain (loss)
|
|
|
3,663,863
|
|
|
|
(3,077,153
|
)
|
|
Net change in unrealized appreciation/depreciation
|
|
|
118,355,094
|
|
|
|
954,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
|
155,528,870
|
|
|
|
44,963,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from Net Investment Income
|
|
|
(6,245,418
|
)
|
|
|
(12,457,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets applicable to common shareholders resulting from investment
operations
|
|
|
149,283,452
|
|
|
|
32,505,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
Distributable earnings
|
|
|
(28,244,569
|
)
|
|
|
(37,568,976
|
)
|
|
Return of capital
|
|
|
(18,749,687
|
)
|
|
|
(20,275,298
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(46,994,256
|
)
|
|
|
(57,844,274
|
)
|
|
|
|
|
|
Common Share Transactions:
|
|
|
|
|
|
|
|
|
|
Reinvestment of distributions
|
|
|
21,612
|
|
|
|
4,324,311
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets applicable to common shareholders
|
|
|
102,310,808
|
|
|
|
(21,014,678
|
)
|
|
|
|
|
|
Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
481,633,004
|
|
|
|
502,647,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
583,943,812
|
|
|
$
|
481,633,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Activity:
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of year
|
|
|
90,369,581
|
|
|
|
89,613,563
|
|
|
Common shares issued for reinvestment of distributions
|
|
|
3,988
|
|
|
|
756,018
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of year
|
|
|
90,373,569
|
|
|
|
90,369,581
|
|
See Notes to Financial Statements
58
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Virtus AllianzGI Convertible &
Income Fund II
|
|
|
|
|
Year ended
February 28,
2021
|
|
|
Year ended
February 29,
2020
|
|
|
Increase (Decrease) in Net Assets from Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
25,826,475
|
|
|
$
|
36,317,754
|
|
|
Net realized gain (loss)
|
|
|
2,875,400
|
|
|
|
(2,433,448
|
)
|
|
Net change in unrealized appreciation/depreciation
|
|
|
89,181,220
|
|
|
|
793,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
|
117,883,095
|
|
|
|
34,677,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from Net Investment Income
|
|
|
(6,447,967
|
)
|
|
|
(10,974,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets applicable to common shareholders resulting from investment
operations
|
|
|
111,435,128
|
|
|
|
23,702,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
Distributable earnings
|
|
|
(20,131,983
|
)
|
|
|
(27,490,452
|
)
|
|
Return of capital
|
|
|
(14,690,973
|
)
|
|
|
(14,454,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(34,822,956
|
)
|
|
|
(41,945,008
|
)
|
|
|
|
|
|
Common Share Transactions:
|
|
|
|
|
|
|
|
|
|
Reinvestment of distributions
|
|
|
—
|
|
|
|
2,723,158
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets applicable to common shareholders
|
|
|
76,612,172
|
|
|
|
(15,518,852
|
)
|
|
|
|
|
|
Net Assets Applicable to Common Shareholders:
|
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
364,381,662
|
|
|
|
379,900,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
440,993,834
|
|
|
$
|
364,381,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares Activity:
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, beginning of year
|
|
|
76,115,749
|
|
|
|
75,583,392
|
|
|
Common shares issued for reinvestment of distributions
|
|
|
—
|
|
|
|
532,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding, end of year
|
|
|
76,115,749
|
|
|
|
76,115,749
|
|
|
–
|
May reflect actual amounts rounding to less than $1.
|
See Notes to Financial Statements
59
STATEMENT OF CASH FLOWS
VIRTUS ALLIANZGI CONVERTIBLE & INCOME 2024 TARGET TERM FUND*
FOR THE YEAR ENDED FEBRUARY 28, 2021
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
|
Cash Flows provided by Operating Activities:
|
|
|
|
|
|
Net increase in net assets resulting from investment operations
|
|
$
|
25,763,972
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net
cash provided by (used for) operating activities:
|
|
|
|
|
|
Purchases of long-term investments
|
|
|
(234,451,566
|
)
|
|
Proceeds from sales of long-term investments
|
|
|
255,327,823
|
|
|
Net purchases of short-term portfolio investments
|
|
|
(19,308,971
|
)
|
|
Net change in unrealized appreciation/depreciation
|
|
|
(7,246,383
|
)
|
|
Net amortization of premium or accretion of discounts on investments
|
|
|
(698,293
|
)
|
|
Net realized gain
|
|
|
(11,108,637
|
)
|
|
Increase in payable for investments purchased
|
|
|
1,537,565
|
|
|
Increase in investments in Affiliated Funds—Trustees Deferred Compensation Plan
|
|
|
(5,712
|
)
|
|
Increase in Trustees Compensation Plan payable
|
|
|
5,712
|
|
|
Decrease in interest and dividends receivable
|
|
|
289,378
|
|
|
Increase in prepaid expenses
|
|
|
(457
|
)
|
|
Increase in net investment advisory fees and administration fees payable
|
|
|
7,773
|
|
|
Increase in accrued expenses and other liabilities
|
|
|
92,140
|
|
|
Decrease in loan interest payable
|
|
|
(78,885
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
10,125,459
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows used for Financing Activities:
|
|
|
|
|
|
Cash distributions paid to shareholders
|
|
|
(10,064,866
|
)
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(10,064,866
|
)
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
60,593
|
|
|
|
|
|
|
|
|
Cash at beginning of year
|
|
|
92,448
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
153,041
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
Reinvestment of dividends and distributions
|
|
$
|
13,559
|
|
|
Cash paid for interest expense on loan
|
|
|
756,459
|
|
|
*
|
Statement of Cash Flows is not required for Virtus AllianzGI Artificial Intelligence & Technology
Opportunities Fund, Virtus AllianzGI Convertible & Income Fund and Virtus AllianzGI Convertible & Income Fund II.
|
See Notes to Financial Statements
60
VIRTUS ALLIANZGI ARTIFICIAL INTELLIGENCE & TECHNOLOGY OPPORTUNITIES FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios for a common share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 28,
2021
|
|
|
Period from
October 31, 2019*
through
February 29,
2020
|
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
19.89
|
|
|
$
|
20.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income (loss)
|
|
|
(0.08
|
)
|
|
|
(0.01
|
)
|
|
Net realized and change in unrealized gain
|
|
|
11.88
|
|
|
|
0.23
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
11.80
|
|
|
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Shareholders from:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
—
|
|
|
|
—
|
|
|
Net realized gains
|
|
|
(2.49
|
)
|
|
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions to shareholders
|
|
|
(2.49
|
)
|
|
|
(0.33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
29.20
|
|
|
$
|
19.89
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
$
|
27.41
|
|
|
$
|
17.72
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return, market value(1)
|
|
|
71.09
|
%
|
|
|
(9.92
|
)%
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
$
|
1,002,838
|
|
|
$
|
682,816
|
|
|
Ratio of net expenses to average net assets, including interest expense(4)(5)
|
|
|
1.42
|
%(6)
|
|
|
1.34
|
%(2)(3)
|
|
Ratio of total expenses to average net assets, including interest expense and excluding reimbursement(4)
|
|
|
1.43
|
%(6)
|
|
|
1.34
|
%(2)(3)
|
|
Ratio of net investment income to average net assets
|
|
|
(0.33
|
)%(6)
|
|
|
(0.15
|
)%(2)(3)
|
|
Portfolio turnover rate
|
|
|
103
|
%
|
|
|
56
|
%
|
|
^
|
A “—” may reflect actual amounts rounding to less than $0.01 or 0.01%.
|
|
*
|
Commencement of operations.
|
|
(1)
|
Total return, market value is calculated assuming a purchase of a common share at the market price on the first day
and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend
reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.
|
|
(2)
|
Annualized, unless otherwise noted.
|
|
(3)
|
Certain expenses incurred by the Fund were not annualized.
|
|
(4)
|
Interest expense relates to participation in the debt financing (See Note 8).
|
|
(5)
|
Ratio of net expenses, before interest expense, was 1.40% and 1.34% for the year ended February 28, 2021 and period
ended February 29, 2020 respectively.
|
|
(6)
|
Inclusive of excise tax expense of 0.05% for the year ended February 28, 2021.
|
See Notes to Financial Statements
61
VIRTUS ALLIANZGI
CONVERTIBLE & INCOME 2024 TARGET TERM FUND
FINANCIAL HIGHLIGHTS
(Selected per share data and ratios for a common share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
Period from
June 30, 2017*
through
February 28,
2018
|
|
|
|
|
February 28,
2021
|
|
|
February 29,
2020
|
|
|
February 28,
2019
|
|
|
|
|
PER SHARE DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period
|
|
$
|
9.85
|
|
|
$
|
9.71
|
|
|
$
|
9.79
|
|
|
$
|
9.84
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.41
|
|
|
|
0.43
|
|
|
|
0.48
|
|
|
|
0.35
|
|
|
Net realized and change in unrealized gain (loss)
|
|
|
1.00
|
|
|
|
0.26
|
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.41
|
|
|
|
0.69
|
|
|
|
0.47
|
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.39
|
)
|
|
|
(0.44
|
)
|
|
|
(0.50
|
)
|
|
|
(0.32
|
)
|
|
Net realized gains
|
|
|
(0.16
|
)
|
|
|
(0.11
|
)
|
|
|
(0.05
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions to shareholders
|
|
|
(0.55
|
)
|
|
|
(0.55
|
)
|
|
|
(0.55
|
)
|
|
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital charge resulting from issuance of common shares and related offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$
|
10.71
|
|
|
$
|
9.85
|
|
|
$
|
9.71
|
|
|
$
|
9.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of period
|
|
$
|
10.04
|
|
|
$
|
9.14
|
|
|
$
|
9.00
|
|
|
$
|
9.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return, market value(1)
|
|
|
16.68
|
%
|
|
|
7.63
|
%
|
|
|
3.72
|
%
|
|
|
(4.59
|
)%
|
|
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000s)
|
|
$
|
195,606
|
|
|
$
|
179,907
|
|
|
$
|
177,319
|
|
|
$
|
178,760
|
|
|
Ratio of net expenses to average net assets, including interest expense(4)(5)(6)
|
|
|
1.72
|
%
|
|
|
2.38
|
%
|
|
|
2.60
|
%
|
|
|
2.14
|
%(2)(3)
|
|
Ratio of total expenses to average net assets, including interest expense and excluding reimbursement(4)(6)
|
|
|
1.73
|
%
|
|
|
2.38
|
%
|
|
|
2.60
|
%
|
|
|
2.14
|
%(2)(3)
|
|
Ratio of net investment income to average net
assets(6)
|
|
|
4.24
|
%
|
|
|
4.34
|
%
|
|
|
4.94
|
%
|
|
|
5.47
|
%(2)(3)
|
|
Portfolio turnover rate
|
|
|
101
|
%
|
|
|
86
|
%
|
|
|
116
|
%
|
|
|
66
|
%
|
See Notes to Financial Statements
62
VIRTUS ALLIANZGI CONVERTIBLE & INCOME 2024 TARGET TERM FUND
FINANCIAL HIGHLIGHTS (Continued)
(Selected per share data and ratios for a common share outstanding throughout each period^)
|
^
|
A “—” may reflect actual amounts rounding to less than $0.01 or 0.01%.
|
|
*
|
Commencement of operations.
|
|
**
|
Initial public offering price of $10.00 per share less sales load of 1.65% of the offering price.
|
|
(1)
|
Total return, market value is calculated assuming a purchase of a common share at the market price on the first day
and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend
reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized.
|
|
(2)
|
Annualized, unless otherwise noted.
|
|
(3)
|
Certain expenses incurred by the Fund were not annualized.
|
|
(4)
|
Interest expense relates to participation in the debt financing (See Note 8).
|
|
(5)
|
Ratio of net expenses, before interest expense, was 1.33%, 1.31%, 1.36% and 1.23% for the years ended 2021, 2020
and 2019 and period ended 2018 respectively.
|
|
(6)
|
Inclusive of excise tax expense of 0.08%, 0.07%, 0.08% and 0.02% (not annualized) for the years ended
February 28, 2021, February 29, 2020, February 28, 2019 and the period ended February 28, 2018, respectively.
|
See Notes to Financial Statements
63
VIRTUS ALLIANZGI CONVERTIBLE & INCOME FUND
FINANCIAL HIGHLIGHTS
(Selected per
share data and ratios for a share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
PER SHARE DATA:
|
|
February 28,
2021
|
|
|
February 29,
2020
|
|
|
February 28,
2019
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
|
Net asset value, beginning of year
|
|
$
|
5.33
|
|
|
$
|
5.61
|
|
|
$
|
6.54
|
|
|
$
|
6.86
|
|
|
$
|
5.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.37
|
|
|
|
0.52
|
|
|
|
0.56
|
|
|
|
0.69
|
|
|
|
0.73
|
|
|
Net realized and change in unrealized gain (loss)
|
|
|
1.35
|
|
|
|
(0.02
|
)
|
|
|
(0.64
|
)
|
|
|
(0.16
|
)
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.72
|
|
|
|
0.50
|
|
|
|
(0.08
|
)
|
|
|
0.53
|
|
|
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from Net Investment Income:(1)
|
|
|
(0.07
|
)
|
|
|
(0.14
|
)
|
|
|
(0.12
|
)
|
|
|
(0.07
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets applicable to common shareholders resulting from investment
operations
|
|
|
1.65
|
|
|
|
0.36
|
|
|
|
(0.20
|
)
|
|
|
0.46
|
|
|
|
2.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and distributions to common shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.31
|
)
|
|
|
(0.42
|
)
|
|
|
(0.50
|
)
|
|
|
(0.77
|
)
|
|
|
(0.78
|
)
|
|
Return of capital
|
|
|
(0.21
|
)
|
|
|
(0.22
|
)
|
|
|
(0.28
|
)
|
|
|
(0.01
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions to common shareholders
|
|
|
(0.52
|
)
|
|
|
(0.64
|
)
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
|
|
(0.78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to net asset value, resulting from tender offer of Auction-Rate Preferred Shares
|
|
|
—
|
|
|
|
—
|
|
|
|
0.09
|
|
|
|
—
|
|
|
|
—
|
|
|
Capital change resulting from issuance of Cumulative Preferred Shares and related offering
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.04
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
6.46
|
|
|
$
|
5.33
|
|
|
$
|
5.61
|
|
|
$
|
6.54
|
|
|
$
|
6.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
5.68
|
|
|
$
|
5.10
|
|
|
$
|
6.24
|
|
|
$
|
6.93
|
|
|
$
|
6.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return, market value(2)
|
|
|
24.29
|
%
|
|
|
(8.51
|
)%
|
|
|
2.00
|
%
|
|
|
12.22
|
%
|
|
|
59.15
|
%
|
|
|
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, applicable to common shareholders, end of year (000s)
|
|
$
|
583,944
|
|
|
$
|
481,633
|
|
|
$
|
502,648
|
|
|
$
|
580,867
|
|
|
$
|
605,194
|
|
|
Ratio of net expenses to average net assets, including interest expense(3)(4)(5)
|
|
|
1.45
|
%
|
|
|
1.53
|
%
|
|
|
1.56
|
%(6)
|
|
|
1.28
|
%
|
|
|
1.36
|
%(7)
|
|
Ratio of total expenses to average net assets, including interest expense and excluding reimbursement(3)(4)
|
|
|
1.48
|
%
|
|
|
1.53
|
%
|
|
|
1.56
|
%(6)
|
|
|
1.28
|
%
|
|
|
1.36
|
%(7)
|
See Notes to Financial Statements
64
VIRTUS ALLIANZGI CONVERTIBLE & INCOME FUND
FINANCIAL HIGHLIGHTS (Continued)
(Selected per share data and ratios for a share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
February 28,
2021
|
|
|
February 29,
2020
|
|
|
February 28,
2019
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
|
Ratio of net investment income to average net
assets(4)
|
|
|
7.04
|
%
|
|
|
9.30
|
%
|
|
|
9.22
|
%(6)
|
|
|
10.32
|
%
|
|
|
11.33
|
%(7)
|
|
Auction-Rate Preferred shares asset coverage per share
|
|
$
|
70,027
|
(8)
|
|
$
|
62,132
|
(8)
|
|
$
|
63,752
|
(8)
|
|
$
|
65,668
|
|
|
$
|
67,376
|
|
|
Cumulative Preferred shares asset coverage per share
|
|
$
|
70
|
(8)
|
|
$
|
62
|
(8)
|
|
$
|
64
|
(8)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cumulative Preferred shares average market value
|
|
$
|
25.91
|
(9)
|
|
$
|
25.81
|
(9)
|
|
$
|
24.46
|
(9)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Portfolio turnover rate
|
|
|
73
|
%
|
|
|
35
|
%
|
|
|
41
|
%
|
|
|
34
|
%
|
|
|
28
|
%
|
|
^
|
A “—” may reflect actual amounts rounding to less than $0.01 or 0.01%.
|
|
(1)
|
Calculated on average common shares outstanding.
|
|
(2)
|
Total return, market value is calculated assuming a purchase of a common share at the market price on the first day
and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend
reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares.
|
|
(3)
|
Interest expense relates to participation in the debt financing (See Note 8).
|
|
(4)
|
Calculated on the basis of income and expenses applicable to both common and preferred shares relative to average
net assets of common shareholders.
|
|
(5)
|
Ratio of net expenses, before interest expense and auction agent fees and commissions, was 1.35%, 1.33%, 1.34%,
1.21% and 1.28% for the years ended 2021, 2020, 2019, 2018 and 2017, respectively.
|
|
(6)
|
Inclusive of tender offer expenses of 0.03%.
|
|
(7)
|
Inclusive of excise tax expense of 0.03% for the year ended February 28, 2017.
|
|
(8)
|
Asset coverage per share is calculated by combining all preferred shares.
|
|
(9)
|
Based on daily closing market prices.
|
See Notes to Financial Statements
65
VIRTUS ALLIANZGI CONVERTIBLE & INCOME FUND II
FINANCIAL HIGHLIGHTS
(Selected per
share data and ratios for a share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
PER SHARE DATA:
|
|
February 28,
2021
|
|
|
February 29,
2020
|
|
|
February 28,
2019
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
|
Net asset value, beginning of year
|
|
$
|
4.79
|
|
|
$
|
5.03
|
|
|
$
|
5.87
|
|
|
$
|
6.14
|
|
|
$
|
4.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.34
|
|
|
|
0.48
|
|
|
|
0.50
|
|
|
|
0.62
|
|
|
|
0.66
|
|
|
Net realized and change in unrealized gain (loss)
|
|
|
1.20
|
|
|
|
(0.03
|
)
|
|
|
(0.57
|
)
|
|
|
(0.14
|
)
|
|
|
1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
1.54
|
|
|
|
0.45
|
|
|
|
(0.07
|
)
|
|
|
0.48
|
|
|
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from Net Investment Income(1)
|
|
|
(0.08
|
)
|
|
|
(0.14
|
)
|
|
|
(0.12
|
)
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets applicable to common shareholders resulting from investment
operations
|
|
|
1.46
|
|
|
|
0.31
|
|
|
|
(0.19
|
)
|
|
|
0.42
|
|
|
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Common Shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.27
|
)
|
|
|
(0.36
|
)
|
|
|
(0.45
|
)
|
|
|
(0.61
|
)
|
|
|
(0.69
|
)
|
|
Return of capital
|
|
|
(0.19
|
)
|
|
|
(0.19
|
)
|
|
|
(0.24
|
)
|
|
|
(0.08
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions to common shareholders
|
|
|
(0.46
|
)
|
|
|
(0.55
|
)
|
|
|
(0.69
|
)
|
|
|
(0.69
|
)
|
|
|
(0.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion to net asset value, resulting from tender offer of Auction-Rate Preferred Shares
|
|
|
—
|
|
|
|
—
|
|
|
|
0.09
|
|
|
|
—
|
|
|
|
—
|
|
|
Capital change resulting from issuance of Cumulative Preferred Shares and related offering
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.05
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$
|
5.79
|
|
|
$
|
4.79
|
|
|
$
|
5.03
|
|
|
$
|
5.87
|
|
|
$
|
6.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$
|
5.01
|
|
|
$
|
4.54
|
|
|
$
|
5.44
|
|
|
$
|
6.10
|
|
|
$
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return, market value(2)
|
|
|
22.81
|
%
|
|
|
(6.98
|
)%
|
|
|
1.14
|
%
|
|
|
10.84
|
%
|
|
|
56.31
|
%
|
See Notes to Financial Statements
66
VIRTUS ALLIANZGI CONVERTIBLE & INCOME FUND II
FINANCIAL HIGHLIGHTS (Continued)
(Selected per share data and ratios for a share outstanding throughout each period^)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
February 28,
2021
|
|
|
February 29,
2020
|
|
|
February 28,
2019
|
|
|
February 28,
2018
|
|
|
February 28,
2017
|
|
|
|
|
|
|
|
|
|
RATIOS/SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, applicable to common shareholders, end of year (000s)
|
|
$
|
440,994
|
|
|
$
|
364,382
|
|
|
$
|
379,901
|
|
|
$
|
440,106
|
|
|
$
|
456,985
|
|
|
Ratio of net expenses to average net assets, including interest expense(3)(4)(5)
|
|
|
1.44
|
%
|
|
|
1.41
|
%
|
|
|
1.53
|
%(6)
|
|
|
1.32
|
%
|
|
|
1.37
|
%
|
|
Ratio of total expenses to average net assets, including interest expense and excluding reimbursement(3)(4)
|
|
|
1.47
|
%
|
|
|
1.41
|
%
|
|
|
1.53
|
%(6)
|
|
|
1.32
|
%
|
|
|
1.37
|
%
|
|
Ratio of net investment income to average net
assets(3)
|
|
|
7.18
|
%
|
|
|
9.48
|
%
|
|
|
9.28
|
%(6)
|
|
|
10.31
|
%
|
|
|
11.46
|
%
|
|
Preferred shares asset coverage per share
|
|
$
|
65,454
|
(7)
|
|
$
|
58,421
|
(7)
|
|
$
|
59,845
|
(7)
|
|
$
|
65,147
|
|
|
$
|
66,691
|
|
|
Cumulative Preferred shares asset coverage per share
|
|
$
|
65
|
(7)
|
|
$
|
58
|
(7)
|
|
$
|
60
|
(7)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cumulative Preferred shares average market value
|
|
$
|
25.64
|
(8)
|
|
$
|
25.39
|
(8)
|
|
$
|
24.04
|
(8)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Portfolio turnover rate
|
|
|
73
|
%
|
|
|
35
|
%
|
|
|
41
|
%
|
|
|
33
|
%
|
|
|
28
|
%
|
|
^
|
A “—” may reflect actual amounts rounding to less than $0.01 or 0.01%.
|
|
(1)
|
Calculated on average common shares outstanding.
|
|
(2)
|
Total return, market value is calculated assuming a purchase of a common share at the market price on the first day
and a sale of a common share at the market price on the last day of each year reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend
reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares.
|
|
(3)
|
Calculated on the basis of income and expenses applicable to both common and preferred shares relative to average
net assets of common shareholders.
|
|
(4)
|
Interest expense relates to participation in the debt financing (See Note 8).
|
|
(5)
|
Ratio of net expenses before interest expense and auction agent fees and commissions, was 1.39%, 1.36%, 1.39%,
1.24% and 1.30% for the years ended 2021, 2020, 2019, 2018 and 2017, respectively.
|
|
(6)
|
Inclusive of tender offer expenses of 0.04%.
|
|
(7)
|
Asset coverage per share is calculated by combining all preferred shares.
|
|
(8)
|
Based on daily closing market prices.
|
See Notes to Financial Statements
67
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 2021
Note 1. Organization
Virtus AllianzGI Artificial
Intelligence & Technology Opportunities Fund (“Artificial Intelligence & Technology Opportunities”), Virtus AllianzGI Convertible & Income 2024 Target Term Fund (“Convertible & Income 2024 Target
Term”), Virtus AllianzGI Convertible & Income Fund (“Convertible & Income”) and Virtus AllianzGI Convertible & Income Fund II Fund (“Convertible & Income II”) (each, a “Fund”
and, collectively, the “Funds”), were organized as Massachusetts business trusts on May 24, 2019, March 21, 2017, January 17, 2003 and April 22, 2003, respectively and accordingly follow the investment company
accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial Services – Investment Companies. Artificial Intelligence &
Technology Opportunities, Convertible & Income 2024 Target Term, Convertible & Income and Convertible & Income II are each organized and registered as diversified, closed-end
management investment companies under the Investment Company Act of 1940, as amended (the “1940 Act”), and the rules and regulations thereunder.
Each Fund has authorized an unlimited amount of common shares with $0.00001 par value.
Note 2. Significant Accounting Policies
The Funds
are investment companies that follow the accounting and reporting guidance of ASC Topic 946 applicable to Investment Companies.
The following
is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S.
GAAP”) requires management to make estimates and assumptions that affected the reported amounts of assets and liabilities, and 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.
Starting February 1, 2021, concurrent with the change in adviser to Virtus Investment Advisers (as detailed in Note 4A), the Funds adopted
valuation policies and procedures used by the other Virtus-sponsored registered Funds, which changes the pricing methodology for debt instruments and options
Each Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.
The Funds’ policy is to recognize transfers 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 Valuation Committee’s own assumptions
in determining the fair value of investments).
|
68
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
A description of the valuation techniques applied to a Fund’s major categories of assets and liabilities measured at fair value on a recurring
basis is as follows:
Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities
are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Restricted equity securities and private placements that are illiquid, or are internally fair valued by the
Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Certain non-U.S.
securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional
and local developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that a Fund calculates its net asset value (“NAV”) at the close
of regular trading on the New York Stock Exchange (“NYSE”) (generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases, the Funds fair
value 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 trading in the
U.S. markets for investments such as ADRs, 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 securities, 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 securities that are internally fair
valued by the 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.
69
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
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 a Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments
for each 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 is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as a Fund is notified. Interest income is recorded on the accrual basis. Each Fund amortizes
premiums and accretes discounts using the effective interest method. Premiums on callable debt securities 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.
Dividend income from Real Estate Investment Trust (“REIT”) and Master Limited Partnership (“MLP”) investments is recorded
using management’s estimate of the percentage of income included in distributions received from such investments based on historical information and other industry sources. The return of capital portion of the estimate is a reduction to
investment income and a reduction in the cost basis of each investment which increases net realized gain (loss) and net change in unrealized appreciation (depreciation). If the return of capital distributions exceed their cost basis, the
distributions are treated as realized gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated
amounts.
The Funds intend to distribute substantially all of their taxable income and capital gain, if any, and to comply with the other requirements of
Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, (the “Code”) applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required. The Funds may be subject to excise tax
based on distributions to shareholders.
Management of the Funds has concluded that there are no significant uncertain tax positions that would
require recognition in the financial statements. Generally, the Funds’ income tax returns for the prior three years remain subject to examination by the applicable tax jurisdictions (with limited exceptions).
|
|
D.
|
Distributions to Common Shareholders
|
The Funds declare distributions to common shareholders monthly. The Funds record dividends and distributions on the ex-dividend date. Distributions
may represent earnings from net investment income, realized capital gains, or if necessary, return of capital. The amount of dividends from net investment income and distributions from net realized capital gains or return of capital is determined in
accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.
70
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
|
|
E.
|
Convertible Securities
|
It is the Funds’ policy to invest a portion of their assets in convertible securities. Although convertible securities derive part of their
value from that of the securities into which they are convertible, they are not considered derivative financial instruments. However, certain of the Funds’ investments in convertible securities include features which render them sensitive to
price changes in their underlying securities. The value of structured/synthetic convertible securities can be affected by interest rate changes and credit risks of the issuer. Such securities may be structured in ways that limit their potential for
capital appreciation and the entire value of the security may be at risk of loss depending on the performance of the underlying equity security. Consequently, the Funds are exposed to greater downside risk than traditional convertible securities,
but typically still less than that of the underlying stock.
The Funds may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or
lending syndicates. Senior loans are generally non-investment grade and often involve borrowers that are highly leveraged. The Funds may invest in obligations of borrowers who are in bankruptcy proceedings. Senior 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 senior
loan. The Funds’ investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When investing in loan participations, the Funds have 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 Funds generally have no right to enforce compliance with the terms of
the senior loan with the borrower. As a result, the Funds may be subject to the credit risk of both the borrower and the lender that is selling the senior loan. When the Funds purchase assignments from lenders it acquires direct rights against the
borrower on the loan.
The Funds may invest in multiple series or tranches of a loan, which may have varying terms and carry different
associated risks. Senior loans may involve foreign borrowers and investments may be denominated in foreign currencies. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt
may be unable, or unwilling, to pay the principal and interest when due.
The senior loans have floating rate loan interests which generally
pay interest a rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR, the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a senior
loan is purchased the Funds may pay an assignment fee. On an ongoing basis, the Funds may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a senior loan. Prepayment penalty fees are received upon the
prepayment of a senior loan by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
71
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
The Funds are parties to Master Repurchase Agreements (“Master Repo Agreements”) with select counterparties. The Master Repo Agreements
include provisions for initiation of repurchase transactions, income payments, events of default, and maintenance of collateral.
The Funds
enter into transactions, under the Master Repo Agreements, with their custodian bank or securities brokerage firms whereby they purchase securities under agreements (i.e., repurchase agreements) to resell such securities at an agreed upon
price and date. The Funds, through their custodian, take possession of securities collateralizing the repurchase agreement. Such agreements are carried at the contract amount in the financial statements, which is considered to represent fair value.
The collateral that is pledged (i.e. the securities received by the Funds), which consists primarily of U.S. government obligations and asset-backed securities, is held by the custodian bank for the benefit of the Funds until the maturity of
the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Funds require that the market value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty.
If the counterparty defaults under the Master Repo Agreements and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited. The gross values are
included in the Funds’ Schedules of Investments. As of February 28, 2021, the value of the related collateral exceeded the value of the repurchase agreements for each Fund.
The Funds 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.
The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be
resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.
Expenses incurred together by the Funds and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except
where allocation of direct expenses to each fund or an alternative allocation method can be more appropriately used.
Note 3. Principal Risks
In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists
due to, among other things, changes
72
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
in the market (market risk) or failure of the other party to a transaction to perform (counterparty risk). The Funds are also exposed to other
risks such as, but not limited to, interest rate, credit and leverage risks.
Interest rate risk is the risk that fixed income securities’
valuations will change because of changes in interest rates. During periods of rising nominal interest rates, the values of fixed income instruments are generally expected to decline. Conversely, during periods of declining nominal interest rates,
the values of fixed income instruments are generally expected to rise. To the extent that a Fund effectively has short positions with respect to fixed income instruments, the values of such short positions would generally be expected to rise when
nominal interest rates rise and to decline when nominal interest rates decline. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more
sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate
(i.e., yield) movements. Interest rate changes can be sudden and unpredictable, and the Funds may lose money as a result of movements in interest rates. High-yield or junk bonds are subject to greater levels of credit and liquidity risk, may
be speculative and may decline in value due to increase in interest rates or an issuer’s deterioration and/or default. The Funds may not be able to hedge against changes in interest rates or may choose not to do so for cost or other reasons. In
addition, any hedges may not work as intended. The values of equity and other non-fixed income securities may also decline due to fluctuations in interest rates.
The Funds are exposed to credit risk, which is the risk of losing money if the issuer or guarantor of a fixed income security is unable or
unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to
varying degrees of credit risk, which are often reflected in credit ratings.
The market values of securities may decline due to general market
conditions (market risk) which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, adverse changes
to credit markets or adverse investor sentiment. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity
securities and equity-related investments generally have greater market price volatility than fixed income securities, although under certain market conditions fixed income securities may have comparable or greater price volatility. Credit ratings
downgrades may also negatively affect securities held by the Funds. Even when markets perform well, there is no assurance that the investments held by the Funds will increase in value along with the broader market. In addition, market risk includes
the risk that local, regional or global events, including geopolitical and other events may disrupt the economy on a national or global level. For example, events such as war, acts of terrorism, the spread of infectious illness or other public
health issues, recessions, or other events could have a significant impact on the economy or the markets for financial instruments and, as a result, could have a significant impact on a Fund and its investments. As a further example, an outbreak of
respiratory disease caused by a novel coronavirus designated as COVID-19 was first detected in China in December 2019 and subsequently spread globally, being designated
73
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
as a pandemic in early 2020. The transmission of COVID-19 and efforts to contain its spread have resulted
in, among other things, border closings and other significant travel restrictions and disruptions; mandatory stay-at-home and work-from-home orders in numerous
countries, including the United States; significant disruptions to business operations, supply chains and customer activity, as well as mandatory business closures; lower consumer demand for goods and services; event cancellations and restrictions;
cancellations, reductions and other changes in services; significant challenges in healthcare service preparation and delivery; public gathering limitations and prolonged quarantines; and general concern and uncertainty. These effects have
exacerbated the significant risks inherent in market investments, and the COVID-19 pandemic has already meaningfully disrupted the global economy and markets, causing market losses across a range of asset
classes, as well as both heightened market volatility and increased illiquidity for trading. Although the long-term economic fallout of COVID-19 is difficult to predict, it has the potential to continue to
have ongoing material adverse effects on the global economy, the economies of individual countries, and the financial performance of individual issuers, sectors, industries, asset classes, and markets in significant and unforeseen ways. Health
crises caused by the outbreak of COVID-19 may also exacerbate other pre-existing political, social, economic, market and financial risks. The effects of the outbreak in
developing or emerging market countries may be greater due to less established health care systems. The COVID-19 pandemic and its effects may be short term or may last for an extended period of time, and in
either case could result in significant market volatility, exchange trading suspensions and closures, declines in global financial markets, higher default rates, and a substantial economic downturn or recession. Furthermore, the ability of the
Investment Adviser or its affiliates to operate effectively, including the ability of personnel to function, communicate and travel to the extent necessary to carry out each Fund’s investment strategies and objectives, may be materially
impaired. All of the foregoing could impair a Fund’s ability to maintain operational standards (such as with respect to satisfying redemption requests), providers, adversely affect the value and liquidity of each Fund’s investments, and
negatively impact each Fund’s performance and your investment in the respective associated disruptions could impair the Fund’s ability to maintain operational standards, disrupt the operations of the Fund’s service providers,
adversely affect the value and liquidity of the Fund’s investments, and negatively impact the Fund’s performance and your investment in the respective Fund.
The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open
transactions will default. The potential loss to the Funds could exceed the value of the financial assets recorded in the Funds’ financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist
principally of cash due from counterparties and investments. The Investment Manager seeks to minimize the Funds’ counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking
transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by
the counterparty. The trade will fail if either party fails to meet its obligation.
The Funds are exposed to risks associated with leverage.
Leverage may cause the value of the Funds’ shares to be more volatile than if the Funds did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds’ portfolio
securities. The Funds may engage in transactions or purchase
74
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
instruments that give rise to forms of leverage. In addition, to the extent the Funds employ leverage, dividend and interest costs on such leverage
may not be recovered by any appreciation of the securities purchased with the leverage proceeds and could exceed the Funds’ investment returns, resulting in greater losses. As discussed further in Note 5, Convertible & Income and
Convertible & Income II have auction-rate and cumulative preferred shares outstanding. As discussed further in Note 8 the Funds have entered into a liquidity facility. In connection with their use of leverage as well as their investment
activities, the Funds may have exposure to the London Interbank Offered Rate (“LIBOR”). LIBOR is an average interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The
United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement
rate, and any potential effects of the transition away from LIBOR on a Fund or on certain instruments in which a Fund invests are not known. However, subsequent announcements by the FCA, the LIBOR administrator and other regulators indicate that it
is possible that certain LIBORs may continue beyond 2021 and certain of the most widely used LIBORs may continue until mid-2023. The unavailability of LIBOR may affect the value, liquidity or return on certain Fund investments and may result in
costs in connection with closing out positions and entering into new trades.
The Funds may hold defaulted securities that may involve special
considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are
often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material. A Fund may incur additional
expenses to the extent it is required to seek recovery upon a portfolio security’s default in the payment of principal or interest. In any bankruptcy proceeding relating to a defaulted investment, a Fund may lose its entire investment or may be
required to accept cash or securities with a value substantially less than its original investment
The preparation of the Funds’
financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires the Funds’ management to make estimates and assumptions that affect the reported amounts and
disclosures in each Fund’s financial statements. Actual results could differ from those estimates.
Like many other companies, the
Funds’ organizational documents provide that their officers (“Officers”) and the Board of Trustees of each Fund (together, the “Board”) are indemnified against certain liabilities arising out of the performance of their
duties to the Funds. In addition, both in some of their principal service contracts and in the normal course of their business, the Funds enter into contracts that provide indemnifications to other parties for certain types of losses or liabilities.
The Funds’ maximum exposure under these arrangements is unknown as this could involve future claims against the Funds.
Note 4. Investment
Manager/Advisory Fees and Related Party Transactions
|
|
A.
|
Investment Manager/Advisor
|
Allianz Global Investors U.S. LLC (“AllianzGI U.S.”) (“Investment Manager”) served as the Funds’ investment manager
through January 31, 2021. AllianzGI U.S. is an indirect, wholly-owned subsidiary of PFP Holdings, Inc. and is a member of Munich-based
75
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Allianz Group. Effective February 1, 2021 (except for Artificial Intelligence & Technology Opportunities which received shareholder
approval on February 25, 2021), following shareholder approval of new investment advisory agreements, Virtus Investment Advisers, Inc. (“VIA”) (“Adviser”), an indirect, wholly owned subsidiary of Virtus Investment Partners,
Inc. (“Virtus”), became the Funds’ investment adviser and manages the Funds’ investment programs and general operations of the Funds, including oversight of the Funds’ subadviser. Effective February 1, 2021 (and
February 26, 2021 for Artificial Intelligence & Technology Opportunities), AllianzGI U.S. became sole sub-adviser to these Funds.
As compensation for its services to the Funds, the Investment Manager/Adviser receives a fee, payable monthly, at an annual rate of 1.25% of
Artificial Intelligence & Technology Opportunities average daily managed assets, an annual rate of 0.75% of average daily total managed assets of Convertible & Income 2024 Target Term, and an annual rate of 0.70% of
Convertible & Income and Convertible & Income II’s average daily total managed assets. Total managed assets for Artificial Intelligence & Technology Opportunities and for Convertible & Income 2024 Target Term
refer to the total assets of each Fund (including assets attributable to any borrowings, issued debt securities or preferred shares that may be outstanding, reverse repurchase agreements and dollar rolls) minus accrued liabilities (other than
liabilities representing borrowings, issued debt securities, reverse repurchase agreements and dollar rolls). Total managed assets for Convertible & Income and Convertible & Income II refer to the total assets of the Fund
(including any assets attributable to any Preferred Shares or other forms of leverage of the Fund that may be outstanding) minus accrued liabilities (other than liabilities representing leverage).
|
|
B.
|
Administration Services
|
Effective February 1, 2021, Virtus Fund Services, LLC (“VFS”), an indirect, wholly-owned subsidiary of Virtus, serves as
administrator to the Funds. For the services provided by the administrator under the Administration Agreement, the Funds pay the administrator an asset-based fee calculated on each Fund’s average daily Managed Assets. This fee is calculated
daily and paid monthly.
From the period of February 1, 2021 through February 25, 2021, AllianzGI U.S. waived its management fee in an amount
sufficient to offset this administration fee.
Effective February 1, 2021, (and February 26, 2021 for Artificial Intelligence & Technology Opportunities), concurrent with VIA becoming
investment adviser of the Funds, VIA contractually agreed to limit each Fund’s annual total operating expenses, subject to the exceptions listed below, so that such expenses do not exceed, on an annualized basis, the following respective
percentages of average daily net assets through February 1, 2023. Following the contractual period, VIA may discontinue these expense reimbursement arrangements at any time. The reimbursements are calculated daily and received monthly.
76
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
|
|
|
|
|
|
|
Fund
|
|
Expense Limit
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
|
0.09
|
%
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
|
0.19
|
%
|
|
|
|
|
Convertible & Income
|
|
|
0.13
|
%
|
|
|
|
|
Convertible & Income II
|
|
|
0.15
|
%
|
The exclusions include investment advisory fees paid to VIA, 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.
Effective February 1, 2021, under certain conditions, the Adviser may recapture operating expenses reimbursed under these arrangements within three
years after the date on which such amounts were incurred. A Fund must pay its ordinary 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 reimbursement. All or a portion of the following Adviser reimbursed expenses may be recaptured by the fiscal year ending:
|
|
|
|
|
|
|
Fund
|
|
Expiration 2024
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
94,371
|
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
$
|
25,004
|
|
|
|
|
|
Convertible & Income
|
|
$
|
106,841
|
|
|
|
|
|
Convertible & Income II
|
|
$
|
97,409
|
|
For the period ended February 28, 2021, the following Funds incurred Trustees’ fees which are included in the Statements of Operations
within the line item Trustees’ Fees and Expenses:
|
|
|
|
|
|
|
Fund
|
|
Trustees Fees
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
91,614
|
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
$
|
18,709
|
|
|
|
|
|
Convertible & Income
|
|
$
|
50,712
|
|
|
|
|
|
Convertible & Income II
|
|
$
|
38,292
|
|
|
|
F.
|
Trustee Deferred Compensation Plan
|
The Trustees do not currently receive any pension or retirement benefits from the Funds. In calendar year 2018 and certain prior periods, each of
Convertible & Income 2024 Target Term, Convertible & Income and Convertible & Income II maintained a deferred compensation plan pursuant to which each Independent Trustee had the opportunity to elect not to receive all or
a portion of his or her fees from the respective Fund on a current basis, but instead to receive in a subsequent period chosen by the
77
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Trustee an amount equal to the value of such compensation if such compensation had been invested in one or more series of Virtus Investment Trust
(formerly known as Allianz Funds) and Virtus Strategy Trust (formerly known as Allianz Funds Multi-Strategy Trust) selected by the Independent Trustees from and after the normal payment dates for such compensation. The deferred compensation program
was closed to new deferrals effective January 1, 2019, and all Trustee fees earned with respect to service in calendar year 2019 and 2020 were paid in cash, on a current basis. The Funds still have obligations with respect to Independent
Trustee fees deferred in 2018 and in prior periods, and will continue to have such obligations until all deferred Trustee fees are paid out pursuant to the terms of the deferred compensation plan.
|
|
G.
|
Investments in Affiliates
|
The Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in
procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common
investment adviser (or affiliated investment advisers), common Trustees and/or common officers comply with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at
the current market price.
During the period ended February 28, 2021, the Funds did not engage in Rule
17a-7 of the 1940 Act transactions.
An affiliated issuer includes any company in which a Fund held 5%
or more of a company’s outstanding voting shares at any point during the fiscal year. The tables below represent transactions in and earnings from these affiliated issuers during the year ended February 28, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible & Income:
|
|
|
|
|
Market Value
2/29/2020
|
|
|
Purchases
at Cost
|
|
|
Proceeds
from Sales
|
|
|
Change in
Unrealized
Appreciation
(Depreciation)
|
|
|
Market Value
2/28/2021
|
|
|
Dividend
Income
|
|
|
Shares as of
2/28/2021
|
|
|
Net Realized
Gain (Loss)
|
|
|
CCF Holdings LLC Class A
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
|
56,642
|
|
|
$
|
—
|
|
|
CCF Holdings LLC Class B
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
21,429
|
|
|
|
—
|
|
|
LiveStyle, Inc., Ser. B
|
|
|
7,657,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,657,200
|
|
|
|
—
|
|
|
|
76,572
|
|
|
|
—
|
|
|
LiveStyle, Inc.
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
90,407
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,657,217
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
7,657,209
|
|
|
$
|
—
|
|
|
|
245,050
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible & Income II:
|
|
|
|
|
Market Value
2/29/2020
|
|
|
Purchases
at Cost
|
|
|
Proceeds
from Sales
|
|
|
Change in
Unrealized
Appreciation
(Depreciation)
|
|
|
Market Value
2/28/2021
|
|
|
Dividend
Income
|
|
|
Shares as of
2/28/2021
|
|
|
Net Realized
Gain (Loss)
|
|
|
CCF Holdings LLC, Class B
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
21,429
|
|
|
$
|
—
|
|
|
LiveStyle, Inc., Ser. B
|
|
|
7,657,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,657,200
|
|
|
|
—
|
|
|
|
76,572
|
|
|
|
—
|
|
|
LiveStyle, Inc.
|
|
|
9
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
90,407
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
7,657,211
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
7,657,203
|
|
|
$
|
—
|
|
|
|
188,408
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Note 5. Investments in Securities
For the year
ended February 28, 2021, purchases and sales of investments, other than short-term securities were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
830,925,412
|
|
|
$
|
863,322,344
|
|
|
Convertible & Income 2024 Target Term
|
|
|
234,451,566
|
|
|
|
255,327,823
|
|
|
Convertible & Income
|
|
|
584,879,808
|
|
|
|
657,258,678
|
|
|
Convertible & Income II
|
|
|
447,047,234
|
|
|
|
502,696,846
|
|
Note 6. Income Tax Information
The tax character of dividends and distributions paid was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28, 2021
|
|
|
Year ended February 29, 2020
|
|
|
|
|
Ordinary
Income (1)
|
|
|
Return of
Capital
|
|
|
Ordinary
Income (1)
|
|
|
Return of
Capital
|
|
|
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
85,438,632
|
|
|
|
—
|
|
|
$
|
11,154,676
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
|
10,078,494
|
|
|
|
—
|
|
|
|
10,077,871
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Convertible & Income
|
|
|
34,489,987
|
|
|
$
|
18,749,687
|
|
|
|
50,026,752
|
|
|
$
|
20,275,298
|
|
|
|
|
|
|
|
|
Convertible & Income II
|
|
|
26,579,950
|
|
|
|
14,690,973
|
|
|
|
38,465,117
|
|
|
|
14,454,556
|
|
|
|
(1)
|
Includes short-term capital gains, if any.
|
At February 28, 2021, the components of distributable earnings were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-October
Capital
Loss (Gain)
|
|
|
|
|
Ordinary
Income
|
|
|
Long-Term
Capital Gain
|
|
|
Capital Loss
Carryforwards
|
|
|
Late Year
Ordinary
Loss(2)
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
87,442,822
|
|
|
$
|
21,606,004
|
|
|
|
—
|
|
|
$
|
258,339
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
|
15,377,881
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Convertible & Income
|
|
|
—
|
|
|
|
—
|
|
|
$
|
233,664,580
|
|
|
|
—
|
|
|
$
|
199,770
|
|
|
|
|
|
|
|
|
|
Convertible & Income II
|
|
|
—
|
|
|
|
—
|
|
|
|
185,531,273
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2)
|
Ordinary losses realized during the period January 1, 2021 through February 28, 2021, which the Funds elected to
defer to the following taxable year pursuant to income tax regulations.
|
79
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
As of February 28, 2021, certain Funds have capital loss carryovers available to offset future realized capital gains, if any, to the extent
permitted by the Internal Revenue Code. Net capital losses are carried forward without expiration and generally retain their short-term and/or long-term tax character, as applicable. The Funds’ capital loss carryovers are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
No Expiration
|
|
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
|
|
|
Convertible & Income
|
|
$
|
47,379,408
|
|
|
$
|
186,285,172
|
|
|
|
|
|
|
Convertible & Income II
|
|
|
36,330,988
|
|
|
|
149,200,285
|
|
For the year ended February 28, 2021, the Fund had capital loss carryforwards which were utilized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
|
|
|
|
Convertible & Income
|
|
$
|
30,166,843
|
|
|
$
|
—
|
|
|
|
|
|
|
Convertible & Income II
|
|
|
22,759,231
|
|
|
|
—
|
|
For financial reporting purposes, book basis capital accounts are adjusted to reflect the tax character of
permanent book/tax differences. The reclassifications have no impact on the net assets or NAV of the Fund. As of February 28, 2021, the Funds recorded reclassifications to increase (decrease) the accounts as listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
(Dividends in Excess
of) Net Investment
Income
|
|
|
Accumulated Net
Realized Gain (Loss)
|
|
|
Paid-in Capital
In Excess
of Par
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities(a)(c)(d)(f)
|
|
$
|
2,741,465
|
|
|
$
|
(2,326,802
|
)
|
|
$
|
(414,663
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
Convertible & Income 2024 Target
Term(a)(b)(c)(d)
|
|
|
3,644,492
|
|
|
|
(3,509,899
|
)
|
|
|
(134,593
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
Convertible & Income(a)(b)(c)(e)
|
|
|
2,974,730
|
|
|
|
(2,544,169
|
)
|
|
|
—
|
|
|
$
|
(430,561
|
)
|
|
|
|
|
|
|
|
Convertible &
Income II(a)(b)(c)(e)
|
|
|
2,144,229
|
|
|
|
(1,828,302
|
)
|
|
|
—
|
|
|
|
(315,927
|
)
|
These permanent “book-tax” differences were primarily
attributable to:
|
|
(a)
|
Treatment of bond premium amortization
|
|
|
(b)
|
Reclassification of contingent debt/convertible securities income/gains
|
|
|
(c)
|
Section 305 sales adjustment
|
|
|
(d)
|
Non-deductible excise tax paid
|
|
|
(e)
|
Reclassifications related to investments in Real Estate Investment Trusts (REITs)
|
80
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
At February 28, 2021, the aggregate cost basis and gross unrealized appreciation (depreciation) of investments for federal income tax purposes
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Tax
Cost Basis(3)
|
|
|
Unrealized
Appreciation
|
|
|
Unrealized
Depreciation
|
|
|
Net Unrealized
Depreciation
|
|
|
|
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$
|
836,317,795
|
|
|
$
|
216,206,893
|
|
|
$
|
4,364,749
|
|
|
$
|
211,842,144
|
|
|
|
|
|
|
|
|
Convertible & Income 2024 Target Term
|
|
|
265,215,428
|
|
|
|
8,508,458
|
|
|
|
6,176,733
|
|
|
|
2,331,725
|
|
|
|
|
|
|
|
|
Convertible & Income
|
|
|
871,345,043
|
|
|
|
137,352,928
|
|
|
|
56,277,165
|
|
|
|
81,075,763
|
|
|
|
|
|
|
|
|
Convertible & Income II
|
|
|
662,670,953
|
|
|
|
104,822,282
|
|
|
|
42,504,270
|
|
|
|
62,318,012
|
|
|
|
(3)
|
Differences between book and tax cost basis were attributable to wash sale loss deferrals, Section 305
adjustments and the differing treatment of bond premium amortization.
|
Note 7. Auction-Rate Preferred Shares
Convertible & Income has 1,894 shares of Auction-Rate Preferred Shares Series A, 1,779 shares of Auction-Rate Preferred Shares Series B,
1,909 shares of Auction-Rate Preferred Shares Series C, 1,842 shares of Auction-Rate Preferred Shares Series D and 1,507 shares of Auction-Rate Preferred Shares Series E outstanding, each with a liquidation preference of $25,000 per share plus any
accumulated, unpaid dividends.
Convertible & Income II has 1,296 shares of Auction-Rate Preferred Shares Series A, 1,512 shares of
Auction-Rate Preferred Shares Series B, 1,239 shares of Auction-Rate Preferred Shares Series C, 1,156 shares of Auction-Rate Preferred Shares Series D and 1,298 shares of Auction-Rate Preferred Shares Series E outstanding, each with a liquidation
preference of $25,000 per share plus any accumulated, unpaid dividends.
Dividends on the Auction-Rate Preferred Shares are accumulated daily
at an annual rate that is typically re-set every seven days. Distributions of net realized capital gains, if any, are paid annually.
For the year ended February 28, 2021, the annualized dividend rates paid with respect to the Auction-Rate Preferred shares of
Convertible & Income and Convertible & Income II ranged from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
At February 28,
2021
|
|
|
Series A
|
|
|
2.357
|
%
|
|
|
0.060
|
%
|
|
|
0.140
|
%
|
|
Series B
|
|
|
2.357
|
%
|
|
|
0.075
|
%
|
|
|
0.140
|
%
|
|
Series C
|
|
|
2.342
|
%
|
|
|
0.075
|
%
|
|
|
0.140
|
%
|
|
Series D
|
|
|
1.637
|
%
|
|
|
0.060
|
%
|
|
|
0.140
|
%
|
|
Series E
|
|
|
1.607
|
%
|
|
|
0.060
|
%
|
|
|
0.120
|
%
|
Convertible & Income and Convertible & Income II are subject to certain limitations and
restrictions while Auction-Rate Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Funds from declaring or paying any dividends or distributions to common shareholders or repurchasing
common shares and/or could trigger the mandatory redemption of Auction-Rate Preferred Shares at their liquidation preference plus any accumulated, unpaid dividends.
Auction-Rate Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote
separately as a class to elect two Trustees
81
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
and on certain matters affecting the rights of the Auction-Rate Preferred Shares. On matters where preferred shareholders vote separately from
common shareholders, including the election of the preferred shares trustees, preferred shareholders are entitled to one vote per $25.00 in liquidation preference per share.
Since mid-February 2008, holders of auction-rate preferred shares (“ARPS”) issued by the Funds
have been directly impacted by a lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for the ARPS issued by the
Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction.
In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction
failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and ARPS holders have continued to receive dividends at the defined “maximum rate”, which for the Funds
is equal to the 7-day “AA” Composite Commercial Paper Rate multiplied by a minimum of 150%, from March 1, 2020 to July 19, 2020 and by a minimum of 200% from July 20, 2020 to
February 28, 2021 depending on the credit rating of the ARPS. The maximum rate is a function of short-term interest rates and typically higher than the rate that would have otherwise been set through a successful auction.
On July 20, 2020, Moody’s Investors Service downgraded each Fund’s ARPS ratings to A1 from Aa3. As a result, the applicable
multiplier for calculating the maximum rate increased from 150% to 200% beginning on that date. If the Funds’ ARPS continue to fail and the “maximum rate” payable on the ARPS rises as result of changes in short-term interest rates,
returns for the Funds’ common shareholders could be adversely affected.
Note 8. Liquidity Facility
Each of Artificial Intelligence & Technology Opportunities, Convertible & Income 2024 Target Term, Convertible & Income
and Convertible & Income II has entered into a liquidity facility (each an “SSB Facility” and together the “SSB Facilities”) with State Street Bank & Trust Company (“State Street”). The Funds pledge
their assets as collateral to secure obligations under the SSB Facilities. The Funds retain the risks and rewards of the ownership of assets pledged to secure obligations under the SSB Facilities. As part of the SSB Facilities, the Funds make assets
available for securities lending transactions with State Street acting as the Funds’ authorized agent for these transactions. All transactions initiated through State Street are required to be secured with cash collateral received from the
securities borrower (the “Borrower”). Securities lending transactions will be secured with cash collateral in amounts no less than 100% of the market value of the securities utilized in these transactions. Cash received by State Street
from securities lending is credited against borrowings under the SSB Facilities. Upon return of securities by the Borrower, State Street will return the cash collateral to the Borrower, as applicable, which will eliminate the credit against the
borrowings and will cause the draw-downs under the SSB Facilities to increase by the amounts returned. Borrowing fees on the loaned securities are retained by State Street.
State Street indemnifies the Funds for certain losses that may arise if the Borrower fails to return securities when due. With respect to
securities lending transactions, upon a default of the securities borrower, State Street uses the collateral received from the Borrower to purchase replacement securities of the same issue, type, class and series. If such collateral is insufficient,
the purchase of replacement securities is made at State Street’s sole cost and expense. Although the risk of the loss of the securities is mitigated by receiving collateral
82
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
from the Borrower and through State Street indemnification, the Funds could experience a delay in recovering securities or could experience a lower
than expected return if the Borrower fails to return the securities on a timely basis.
State Street may fund drawdowns under a State Street
Facility through reverse repurchase agreements in a manner and on terms that are substantially similar to the securities loans described above. None of the Funds’ borrowings during the reporting period were funded though reverse repurchase
agreements. At February 28, 2021, the maximum capital commitment amounts under the respective SSB Facilities were $125,000,000, $71,000,000, $34,000,000 and $0, respectively, for Artificial Intelligence & Technology Opportunities,
Convertible & Income 2024 Target Term, Convertible & Income and Convertible & Income II. Interest on amounts drawn under each SSB Facility is charged at a daily rate equal to the U.S.
3-month LIBOR rate plus 0.55%, with a commitment fee of 0.15% payable on the maximum capital commitment amount less the amount drawn in any month when the amount drawn is less than 85% of the commitment amount
on any day. At February 28, 2021, the Artificial Intelligence & Technology Opportunities, Convertible & Income 2024 Target Term and Convertible & Income had borrowings outstanding under the SSB Facilities totaling
$30,000,000, $69,700,000 and $28,851,500, respectively, which are shown in the Statements of Assets and Liabilities as Loan Payable. Convertible & Income II did not have borrowings outstanding at February 28, 2021. The interest rate
charged at February 28, 2021, was 0.74%. During the year ended February 28, 2021 when the Funds had outstanding borrowings, the weighted average daily balances outstanding for Artificial Intelligence & Technology Opportunities,
Convertible & Income 2024 Target Term and Convertible & Income were $30,000,000, $69,700,000 and $28,851,500, respectively, at the weighted average interest rate, including commitment fees, of 0.773%, 0.950%, 0.950%, respectively.
Loan interest expense of $128,923, $677,574, and $280,474, respectively, are included in the Funds’ Statements of Operations.
As of
February 28, 2021, Artificial Intelligence & Technology Opportunities, Convertible & Income 2024 Term and Convertible & Income used approximately $18,380,941, $41,754,405 and $24,334,709, respectively, of the cash
collateral received from the Liquidity Facility to credit against borrowings under the SSB Facilities, representing 1.75%, 15.5% and 2.5% of managed assets, respectively. Cash and securities purchased with cash received through the SSB Facility are
included in cash and investment line items per the Statements of Assets and Liabilities. As of February 28, 2021, $18,417,779, $40,887,965 and $24,043,613 of securities were on loan, respectively, under the SSB Facilities for Artificial
Intelligence & Technology Opportunities, Convertible & Income 2024 Target Term and Convertible & Income. These amounts are reflected on the Statements of Assets and Liabilities in Investments, at value. Each Fund may
terminate its SSB Facility with 60 days’ notice. If certain asset coverage and collateral requirements, or other covenants are not met, an SSB Facility could be deemed in default and result in termination. Absent a default or facility
termination event, State Street is required to provide a Fund with 360 days’ notice prior to terminating such Fund’s SSB Facility.
Note 9. Common
Shares Issued
During the fiscal period ended February 29, 2020, Artificial Intelligence & Technology Opportunities issued
30,750,000 common shares in its initial public offering. An additional 2,068,135 shares were issued in connection with the exercise of the underwriters’ over-allotment option. These shares were all issued at the $20.00 per share public offering
price. The Investment Manager agreed to pay all offering costs associated with the public offering.
83
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Each of Convertible & Income and Convertible & Income II has a currently effective “shelf” registration statement
pursuant to which it may offer, from time to time in one or more offerings, up to $120 million (in the case of Convertible & Income) and $90 million (in the case of Convertible & Income II) in common shares on terms to be
determined at the time of the offering. The Board has also approved underwriting arrangements for such potential offerings. However, as of the date of this prospectus, neither Fund had initiated such an offering and it is uncertain whether or when
either Fund will proceed with such an offering. Convertible & Income and Convertible & Income II both incurred deferred offering costs related to the offering, which, if any, will be charged to capital upon the completion of the
offering or charged to expense if the offering is not completed.
Note 10. Cumulative Preferred Shares
On September 11, 2018, Convertible & Income II issued 4,360,000 shares of 5.50% Series A Cumulative Preferred Shares with an
aggregate liquidation value of $109,000,000 (“NCZ Series A Preferred Shares”). The shares are perpetual, non-callable for a period of five years and have a liquidation preference of $25.00 per share.
Commencing September 11, 2023, and thereafter, to the extent permitted by the 1940 Act, and Massachusetts law, Convertible & Income II may at any time, upon notice of redemption, redeem the NCZ Series A Preferred Shares in whole or in
part at the liquidation preference per share plus accumulated unpaid dividends through the date of redemption. Dividends are paid at an annual rate of 5.50% on a quarterly basis, and commenced on October 1, 2018, with the first such payment pro-rated from the date of issuance. The Series A Cumulative Preferred Shares of Convertible & Income II received a long-term rating of “AAA” from Fitch Ratings. (“Fitch Ratings”).
On September 20, 2018, Convertible & Income issued 4,000,000 shares of 5.625% Series A Cumulative Preferred Shares with an aggregate
liquidation value of $100,000,000 (“NCV Series A Preferred Shares”). The shares are perpetual, non-callable for a period of five years and have a liquidation preference of $25.00 per share.
Commencing September 20, 2023, and thereafter, to the extent permitted by the 1940 Act, and Massachusetts law, Convertible & Income may at any time, upon notice of redemption, redeem the NCV Series A Preferred Shares in whole or in
part at the liquidation preference per share plus accumulated unpaid dividends through the date of redemption. Dividends are paid at an annual rate of 5.625% on a quarterly basis, and commenced on October 1, 2018, with the first such payment pro-rated from the date of issuance. The Series A Cumulative Preferred Shares of Convertible & Income received a long-term rating of “AAA” from Fitch Ratings. Fitch Ratings downgraded the
Cumulative Preferred Shares of each Fund from “AAA” to “AA” on May 14, 2020.
On December 16, 2020, the Board of
Trustees of the Convertible & Income and Convertible & Income II approved a Repurchase Plan (“Repurchase Plan”) with respect to the outstanding series A cumulative preferred shares (“CPS”) issued by the Funds. Each Fund
has access to a short-term revolving credit facility (as outlined in Note 8). Pursuant to the Repurchase Plan, the Funds would repurchase its CPS in the open market on any trading day when (i) a Fund’s CPS are trading at a market price at or
below their liquidation preference ($25.00 per share), provided the current rate of interest on its State Street Credit Facility is less than or equal to 5.00% or (ii) a Fund’s CPS are trading at a market price which represents a premium of up
to 1.00% above their liquidation preference (up to $25.25) provided the current rate of interest on its State Street Credit Facility is less than or equal to 3.00% for Convertible & Income or less than or equal to 2.75% for Convertible &
84
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Income II, subject, in each case, to the terms and conditions of the Repurchase Plan and input from the portfolio management team as to market
conditions and other factors. Any repurchases will be made consistently with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. On each day that shares are repurchased under the Repurchase Plan, a Fund may
repurchase its shares in an amount up to 25% of the average daily trading volume of the CPS over the trailing four week period. It is currently expected that each Fund would borrow under its respective State Street Credit Facility to replace any
leverage reduced through the Repurchase Plan.
Note 11. Significant Account Holder
From time to time, a Fund may have a concentration of shareholders, which may include the Investment Manager or affiliates of the Investment
Manager, holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on a Fund. At February 28, 2021, Louisiana Workers Co., Fidelity National Financial Inc. and America
Financial Life & Annuity Insurance Co. each held 5% or more of cumulative preferred shares of Convertible & Income. At February 28, 2021, Fidelity National Financial Inc. held 5% or more of cumulative preferred shares of
Convertible & Income II.
Note 12. Indemnifications
Under the Funds’ organizational documents, the Trustees and officers are indemnified against certain liabilities arising out of the
performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide a variety of indemnifications to other parties. The Funds’ maximum exposure under these arrangements is unknown
as this would involve future claims that may be made against the Funds and that have not occurred. However, the Funds have not had prior claims or losses pursuant to these arrangements and expect the risk of loss to be remote.
Note 13. Regulatory Matters and Litigation
From
time to time, the Funds, the Adviser, the subadvisers, and/or their respective affiliates may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance
with, among other things, securities laws, client investment guidelines, and laws and regulations affecting their activities. At this time, the Funds and the Adviser believe that the outcomes of such matters are not likely, either individually, or
in the aggregate, to be material to these financial statements.
Note 14. Recent Accounting Pronouncements
In March 2020, the FASB issued Accounting Standards Update No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848) – Facilitation of the Effective 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 LIBOR and other interbank-offered based reference rates as of the end of 2021. ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management is currently evaluating the impact, if any,
of applying ASU 2020-04.
85
NOTES TO FINANCIAL STATEMENTS (Continued)
FEBRUARY 28, 2021
Note 15. Subsequent Events
Management has
evaluated the impact of all subsequent events on the Funds through the date the financial statements were available for issuance, and has determined that the following are the only subsequent events requiring recognition or disclosure in these
statements.
On March 1, 2021 the following monthly dividends were declared to common shareholders, payable April 1, 2021 to common
shareholders of record on March 11, 2021:
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$0.1250 per common share
|
|
Convertible & Income 2024 Target Term
|
|
$0.0460 per common share
|
|
Convertible & Income
|
|
$0.0425 per common share
|
|
Convertible & Income II
|
|
$0.0375 per common share
|
On March 1, 2021 the following monthly dividends were declared to cumulative preferred shareholders, payable
March 31, 2021 to shareholders of record on March 11, 2021:
|
|
|
|
|
Convertible & Income
|
|
$0.3515625 per share
|
|
Convertible & Income II
|
|
$0.34375 per share
|
On December 4, 2020, Fitch Ratings published revised closed-end fund obligations ratings criteria, which included
new, lower ratings caps for closed-end funds (the “New Ratings Criteria”). In connection with the New Ratings Criteria, on March 23, 2021, the Board approved, effective upon Fitch Ratings’ rating of the ARPS and/or Cumulative
Preferred Shares, as applicable, pursuant to the New Ratings Criteria: (i) the New Ratings Criteria as the operative Fitch Ratings criteria with respect to Convertible & Income II’s ARPS and Convertible & Income’s and Convertible
& Income II’s outstanding Cumulative Preferred Shares, and associated amendments to each Fund’s Bylaws, and (ii) a related amendment to Convertible & Income II’s Bylaws that will modify a financial covenant to conform with the
New Ratings Criteria.
On April 1, 2021 the following monthly dividends were declared to common shareholders, payable May 3, 2021 to common
shareholders of record on April 12, 2021:
|
|
|
|
|
Artificial Intelligence & Technology Opportunities
|
|
$0.1250 per common share
|
|
Convertible & Income 2024 Target Term
|
|
$0.0460 per common share
|
|
Convertible & Income
|
|
$0.0425 per common share
|
|
Convertible & Income II
|
|
$0.0375 per common share
|
86
Report of Independent Registered Public
Accounting Firm
To the Board of Trustees
and Shareholders of Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund, Virtus AllianzGI Convertible & Income 2024 Target Term Fund, Virtus AllianzGI Convertible & Income Fund, and Virtus AllianzGI
Convertible & Income Fund II
