UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-04739
Virtus Total Return Fund Inc. (fka The Zweig
Fund, Inc.)
(Exact name of registrant as specified in charter)
101 Munson Street
Greenfield, MA 01301-9668
(Address of principal executive offices) (Zip code)
William Renahan, Esq.
Vice President, Chief Legal Officer and Secretary for Registrant
100 Pearl Street
Hartford, CT 06103-4506
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 272-2700
Date of fiscal year end: November 30
Date of reporting period: May 31, 2017
EXPLANATORY NOTE: Registrant is filing this amendment to its Form N-CSR for the fiscal quarter ended May 31, 2017 originally filed with the Securities and Exchange Commission on August 4, 2017 (Accession Number 0001193125-17-248442). The revised filing adds explanatory language to Item 12 Exhibits regarding the 19a filings which are attached. Except as set forth above, this amendment does not amend, update or change any other items or disclosures found in the original Form N-CSR filing.
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
| Item 1. | Reports to Stockholders. |
The Report to Shareholders is attached herewith.
SEMIANNUAL REPORT
| Not FDIC Insured No Bank Guarantee May Lose Value |
May 31, 2017 |
FUND DISTRIBUTIONS AND MANAGED DISTRIBUTION PLAN
The Fund has a Managed Distribution Plan to maintain a consistent distribution level that may be paid in part or in full from net investment income, realized capital gains, or, if necessary, return of capital. The Board believes that regular quarterly, fixed cash payouts will enhance shareholder value and serve the long-term interests of shareholders. You should not draw any conclusions about the Fund’s investment performance from the amount of the distributions or from the terms of the Fund’s Managed Distribution Plan.
On a tax basis, the Fund estimates it distributed more than its income and net realized capital gains in the fiscal year to date (See Note 12 in Notes to Financial Statements.) Shareholders should note, however, that if the Fund’s aggregate investment income and net realized capital gains are less than the amount of the distribution level, the difference will be paid from the Fund’s capital and will constitute a return of the shareholder’s capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.”
The amounts and sources of distributions reported in the Fund’s notices pursuant to Section 19(a) of the Investment Company Act of 1940 are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will send shareholders a Form 1099-DIV for 2017 that tells them how to report distributions for federal income tax purposes.
The Board may amend, suspend or terminate the Managed Distribution Plan at any time, without prior notice to shareholders if it deems such action to be in the best interest of the Fund and its shareholders.
Information on the Fund is available at www.Virtus.com. Section 19(a) notices are posted on the website at: http://www.virtus.com/our-products/closed-end-fund-details/ZF.
1
MESSAGE TO SHAREHOLDERS
Dear Virtus Total Return Fund Inc. Shareholder:
I am pleased to share the semiannual report for the Virtus Total Return Fund Inc. (formerly known as The Zweig Fund, Inc.) for the six months ended May 31, 2017.1
This report includes commentary from the fund’s co-portfolio managers, Duff & Phelps Investment Management Co. and Newfleet Asset Management, LLC, on the performance of the markets and their respective equity and fixed income portions of the portfolio during the period, as well as Newfleet’s discussion on the contribution of the options overlay strategy. The results of the annual meeting of shareholders held on June 6, 2017 are also included.
For the six months ended May 31, 2017, the fund’s NAV gained 19.38%, including $0.20 in reinvested distributions. During the same period, the fund’s composite benchmark, consisting of 60% MSCI World Infrastructure Sector Capped Index (net) and 40% Bloomberg Barclays U.S. Aggregate Bond Index, gained 10.27%, including reinvested dividends. Performance for the composite’s underlying indices over this period included a gain of 10.97% for the MSCI World Infrastructure Sector Capped Index (net) and a gain of 2.52% for the Bloomberg Barclays U.S. Aggregate Bond Index.
On behalf of Virtus Investment Partners and our affiliated portfolio managers, thank you for your investment. Should you have any questions or require support, the Virtus customer service team is ready to assist at 1-866-270-7788 or through the closed-end fund section of our website, www.virtus.com.
Sincerely,
George R. Aylward
President, Chief Executive Officer, and Director
Virtus Total Return Fund Inc.
July 2017
This information does not represent an offer, or the solicitation of an offer, to buy or sell securities of the Fund.
Performance data quoted represents past results. Past performance is no guarantee of future results and current performance may be higher or lower than performance shown.
| 1 | The Virtus Total Return Fund (NYSE: DCA) was merged with and into The Zweig Fund, Inc. (NYSE: ZF) on April 3, 2017. On that date, the fund name was changed to Virtus Total Return Fund Inc., and the fund has continued to trade under the “ZF” ticker symbol. The fund’s historical performance prior to April 3, 2017 reflects the performance of DCA, which is the accounting survivor of the merger. |
2
VIRTUS TOTAL RETURN FUND INC.
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited)
MAY 31, 2017
| (1) | Performance of the Fund prior to April 3, 2017 is based on performance of the Merged Fund, that reorganized with the Fund on that date. |
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 9
3
VIRTUS TOTAL RETURN FUND INC.
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
MAY 31, 2017
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 9
4
VIRTUS TOTAL RETURN FUND INC.
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
MAY 31, 2017
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 9
5
VIRTUS TOTAL RETURN FUND INC.
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
MAY 31, 2017
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 9
6
VIRTUS TOTAL RETURN FUND INC.
MANAGER’S DISCUSSION OF FUND PERFORMANCE (Unaudited) (Continued)
MAY 31, 2017
For information regarding the indexes and certain key investment terms, see Key Investment Terms starting on page 9
7
VIRTUS TOTAL RETURN FUND INC.
MAY 31, 2017
(Unaudited)
The following tables present the portfolio holdings within certain sectors or countries as a percentage of total investments net of written options as of May 31, 2017.
| Asset Allocation | ||||||||
| Common Stocks |
62 | % | ||||||
| Utilities |
25 | % | ||||||
| Industrials |
20 | |||||||
| Energy |
11 | |||||||
| All other common stock sectors |
6 | |||||||
| Corporate Bonds |
19 | |||||||
| Energy |
5 | |||||||
| Financials |
3 | |||||||
| Consumer Discretionary |
3 | |||||||
| All other corporate bond sectors |
8 | |||||||
| Mortgage Backed Securities |
5 | |||||||
| Foreign Government Securities |
5 | |||||||
| Loan Agreements |
4 | |||||||
| Asset-Backed Securities |
1 | |||||||
| Preferred Stocks |
1 | |||||||
| Other (includes Short-Term Investments) |
3 | |||||||
|
|
|
|||||||
| 100 | % | |||||||
|
|
|
|||||||
| Country Weightings | ||||
| United States | 60 | % | ||
| Canada |
9 | |||
| Spain |
6 | |||
| Australia |
4 | |||
| Italy |
3 | |||
| France |
2 | |||
| United Kingdom |
2 | |||
| Other |
14 | |||
|
|
|
|||
| Total |
100 | % | ||
|
|
|
|||
8
VIRTUS TOTAL RETURN FUND INC.
KEY INVESTMENT TERMS (Unaudited)
MAY 31, 2017
American Depositary Receipt (ADR)
Represents shares of foreign companies traded in U.S. dollars on U.S. exchanges that are held by a U.S. bank or a trust. Foreign companies use ADRs in order to make it easier for Americans to buy their shares.
Bloomberg Barclays U.S. Aggregate Bond Index
The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Brexit
A combination of the words “Britain” and “exit” which refers to Britain’s withdrawal from the European Union.
Chicago Board Options Exchange (CBOE) Volatility Index
The Chicago Board Options Exchange (CBOE) Volatility Index (“VIX®”) shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500® index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX® is a widely used measure of market risk and is often referred to as the “investor fear gauge.” The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Composite Index for Total Return Fund
A composite index which consists of 60% MSCI World Infrastructure Sector Capped Index (net) and 40% Bloomberg Barclays U.S. Aggregate Bond Index. The MSCI World Infrastructure Sector Capped Index (net) is a market capitalization weighted index that measures performance of global infrastructure companies by capturing broad and diversified opportunities across telecommunication, utilities, energy, transportation and social infrastructure sectors. The telecommunication infrastructure and utilities sector each represent one-third of the index weight, while energy, transportation and social infrastructure sectors have a combined weight of the remaining one-third of the index. The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The indices are unmanaged and their returns do not reflect any fees, expenses, or sales charges, and they are not available for direct investment.
Exchange-Traded Funds (ETF)
An open-end fund that is traded on a stock exchange. Most ETFs have a portfolio of stocks or bonds that track a specific market index.
Federal Reserve (the “Fed”)
The Central bank of the United States, responsible for controlling the money supply, interest rates and credit with the goal of keeping the U.S. economy and currency stable. Governed by a seven-member board, the system includes 12 regional Federal Reserve Banks, 25 branches and all national and state banks that are part of the system.
FTSE Developed Core Infrastructure 50/50 Index (net)
The FTSE Developed Core Infrastructure 50/50 Index (net) is a free float-adjusted market capitalization weighted index that gives participants an industry defined interpretation of
9
VIRTUS TOTAL RETURN FUND INC.
KEY INVESTMENT TERMS (Unaudited) (Continued)
MAY 31, 2017
infrastructure and adjust the exposure to certain infrastructure sub-sectors. The constituent weights for the index are 50% Utilities, 30% Transportation including capping of 7.5% for railroads/railways and a 20% mix of other sectors including pipelines, satellites and telecommunication towers. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.
Gross Domestic Product (GDP)
The gross domestic product (GDP) represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance.
MSCI World Index (net)
The MSCI World Index (net) is a free float-adjusted market capitalization-weighted index that measures developed global market equity performance. The index is calculated on a total return basis with net dividends reinvested. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
MSCI World Infrastructure Sector Capped Index (net)
The MSCI World Infrastructure Sector Capped Index is a market capitalization weighted index that measures performance of global infrastructure companies by capturing broad and diversified opportunities across telecommunication, utilities, energy, transportation and social infrastructure sectors. The telecommunication infrastructure and utilities sector each represent one-third of the index weight, while energy, transportation and social infrastructure have a combined weight of the remaining one-third of the index. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and it is not available for direct investment.
Payment-in-Kind (PIK)
A bond that pays interest in the form of additional bonds, or preferred stock which pays dividends in the form of additional preferred stock.
Quantitative Easing A government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.
Yield Curve
A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
10
11
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
12
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
13
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
14
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
15
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
16
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
17
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
18
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
19
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
20
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
21
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
22
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
23
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
24
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
25
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
26
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
27
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
See Notes to Financial Statements
28
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
The following table provides a summary of inputs used to value the Fund’s investments as of May 31, 2017 (See Security Valuation Note 2A in the Notes to Financial Statements):
| Total Value at May 31, 2017 |
Level 1 Quoted Prices |
Level 2 Significant Observable Inputs |
Level 3 Significant Unobservable Inputs |
|||||||||||||
| Debt Securities: |
||||||||||||||||
| Asset-Backed Securities |
$ | 5,302 | $ | — | $ | 5,302 | $ | — | ||||||||
| Corporate Bonds and Notes |
77,784 | — | 77,588 | 196 | ||||||||||||
| Foreign Government Securities |
19,331 | — | 19,331 | — | ||||||||||||
| Loan Agreements |
14,276 | — | 14,222 | 54 | ||||||||||||
| Mortgage-Backed Securities |
21,886 | — | 21,886 | — | ||||||||||||
| U.S. Government Securities |
1,456 | — | 1,456 | — | ||||||||||||
| Equity Securities: |
||||||||||||||||
| Common Stock |
247,943 | 247,943 | — | — | ||||||||||||
| Preferred Stocks |
4,529 | 1,163 | 3,366 | — | ||||||||||||
| Purchased Options |
248 | 248 | — | — | ||||||||||||
| Rights |
2 | — | — | 2 | ||||||||||||
| Short-Term Investment |
9,195 | 9,195 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments before Written Options |
$ | 401,952 | $ | 258,549 | $ | 143,151 | $ | 252 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Written Options |
$ | (562 | ) | $ | (562 | ) | $ | — | $ | — | ||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments Net of Written Options |
$ | 401,390 | $ | 257,987 | $ | 143,151 | $ | 252 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
There were no securities transferred between Level 1 and Level 2 related to securities held at May 31, 2017.
See Notes to Financial Statements
29
VIRTUS TOTAL RETURN FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited) (Continued)
MAY 31, 2017
($ reported in thousands)
The following is a reconciliation of assets of the Fund for Level 3 investments for which significant unobservable inputs were used to determine fair value.
| Investments in Securities | Total | Corporate Bonds and Notes |
Loan Agreements |
Rights | ||||||||||||
| Balance as of November 30, 2016: |
$ | 203 | $ | 200 | $ | 1 | $ | 2 | ||||||||
| Accrued discount/(premium) |
— | (e) | — | (e) | — | (e) | — | |||||||||
| Realized gain (loss) |
(62 | ) | — | (e) | (62 | ) | — | |||||||||
| Change in unrealized appreciation (depreciation)(c) |
63 | 1 | 62 | — | ||||||||||||
| Purchases |
157 | 36 | 119 | 2 | ||||||||||||
| Sales(b) |
(109 | ) | (41 | ) | (66 | ) | (2 | ) | ||||||||
| Transfers into Level 3(a)(d) |
— | — | (e) | — | — | |||||||||||
| Transfers from Level 3(a)(d) |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Balance as of May 31, 2017 |
$ | 252 | $ | 196 | (f) | $ | 54 | $ | 2 | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (a) | “Transfers into and/or from” represent the ending value as of May 31, 2017, for any investment security where a change in the pricing level occurred from the beginning to the end of the period. |
| (b) | Includes paydowns on securities. |
| (c) | Included in the related net change in unrealized appreciation (depreciation) on investments in the Statement of Operations. The change in unrealized appreciation (depreciation) on investments still held at May 31, 2017 was $1. |
| (d) | The transfers are due to increase and/or (decrease) in trading activities at period end. |
| (e) | Amount is less than $500. |
| (f) | Includes internally fair valued securities. |
Some of the Fund’s investments that are categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information inputs could result in a significantly lower or higher value of Level 3 investments.
See Notes to Financial Statements
30
VIRTUS TOTAL RETURN FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
MAY 31, 2017
(Reported in thousands except shares and per share amounts)
| Assets | ||||
| Investment in securities at value (Identified cost $379,861) |
$ | 401,952 | ||
| Foreign currency at value (Identified cost $14) |
14 | |||
| Cash |
312 | |||
| Deposits with prime broker |
7,131 | |||
| Segregated cash for options |
222 | |||
| Receivables | ||||
| Investment securities sold |
704 | |||
| Dividends and interest |
2,684 | |||
| Tax reclaims |
116 | |||
| Prepaid expenses |
48 | |||
| Prepaid directors’ retainer |
37 | |||
|
|
|
|||
| Total assets |
413,220 | |||
|
|
|
|||
| Liabilities | ||||
| Written options at value (Premiums received $1,195) (Note 3) |
562 | |||
| Payables | ||||
| Borrowings (Note 8) |
105,000 | |||
| Investment securities purchased |
2,664 | |||
| Investment advisory fees |
291 | |||
| Administration and accounting fees |
23 | |||
| Printing fees and expenses |
99 | |||
| Transfer agent fees and expenses |
32 | |||
| Professional fees |
53 | |||
| Interest payable on borrowings |
6 | |||
| Other accrued expenses |
32 | |||
|
|
|
|||
| Total liabilities |
108,762 | |||
|
|
|
|||
| Net Assets | $ | 304,458 | ||
|
|
|
|||
| Net Assets Consist of: | ||||
| Common stock ($0.10 par value 200,000,000 shares authorized) |
$ | 2,266 | ||
| Capital paid in on shares of beneficial interest |
335,850 | |||
| Accumulated undistributed net investment income (loss) |
(1,583 | ) | ||
| Accumulated undistributed net realized gain (loss) |
(54,794 | ) | ||
| Net unrealized appreciation (depreciation) on investments |
22,086 | |||
| Net unrealized appreciation (depreciation) on written options |
633 | |||
|
|
|
|||
| Net Assets | $ | 304,458 | ||
|
|
|
|||
| Net Asset Value Per Share |
$ | 13.44 | ||
|
|
|
|||
See Notes to Financial Statements
31
VIRTUS TOTAL RETURN FUND INC.
STATEMENT OF OPERATIONS (Unaudited)
SIX MONTHS ENDED MAY 31, 2017
($ reported in thousands)
| Investment Income | ||||
| Dividends |
$ | 3,484 | ||
| Interest |
2,488 | |||
| Foreign taxes withheld |
(189 | ) | ||
| Less return of capital distributions |
(290 | ) | ||
|
|
|
|||
| Total investment income |
5,493 | |||
|
|
|
|||
| Expenses | ||||
| Investment advisory fees |
1,055 | |||
| Administration and accounting fees |
166 | |||
| Professional fees |
286 | |||
| Printing fees and expenses |
276 | |||
| Directors’ fees and expenses |
119 | |||
| Custodian fees |
35 | |||
| Transfer agent fees and expenses |
32 | |||
| Miscellaneous expenses |
45 | |||
|
|
|
|||
| Total expenses before interest expense |
2,014 | |||
| Interest expense on borrowings (Note 8) |
573 | |||
|
|
|
|||
| Total expenses after interest expense |
2,587 | |||
| Less Administration fees waived |
(43 | ) | ||
| Earnings credit from custodian |
(4 | ) | ||
|
|
|
|||
| Net expenses |
2,540 | |||
|
|
|
|||
| Net investment income (loss) | 2,953 | |||
|
|
|
|||
| Net Realized and Unrealized Gain (Loss) on Investments | ||||
| Net realized gain (loss) on investments |
7,242 | |||
| Net realized gain (loss) on foreign currency transactions |
5 | |||
| Net realized gain (loss) on written options |
8,512 | |||
| Net change in unrealized appreciation (depreciation) on investments |
11,426 | |||
| Net change in unrealized appreciation (depreciation) on foreign currency translations |
3 | |||
| Net change in unrealized appreciation (depreciation) on written options |
400 | |||
|
|
|
|||
| Net realized and unrealized gain (loss) on investments | 27,588 | |||
|
|
|
|||
| Net increase (decrease) in net assets resulting from operations | $ | 30,541 | ||
|
|
|
See Notes to Financial Statements
32
VIRTUS TOTAL RETURN FUND INC.
STATEMENTS OF CHANGES IN NET ASSETS
($ reported in thousands)
| Six Months Ended May 31, 2017 (Unaudited) |
Year Ended November 30, 2016 |
|||||||
| INCREASE/(DECREASE) IN NET ASSETS |
||||||||
| From Operations |
||||||||
| Net investment income (loss) |
$ | 2,953 | $ | 4,380 | ||||
| Net realized gain (loss) |
15,759 | 6,433 | ||||||
| Net change in unrealized appreciation (depreciation) |
11,829 | 227 | ||||||
|
|
|
|
|
|||||
| Increase (decrease) in net assets resulting from operations | 30,541 | 11,040 | ||||||
|
|
|
|
|
|||||
| From Distributions to Shareholders | ||||||||
| Net investment income |
(4,395 | )(1) | (10,986 | ) | ||||
|
|
|
|
|
|||||
| Decrease in net assets from distributions to shareholders | (4,395 | ) | (10,986 | ) | ||||
|
|
|
|
|
|||||
| From Capital Share Transactions | ||||||||
| Plan of reorganization (Note 11) |
205,317 | (2) | — | |||||
| Payments for tendered shares (Note 7) |
(53,513 | ) | — | |||||
|
|
|
|
|
|||||
| Increase (decrease) in net assets from capital share transactions | 151,804 | — | ||||||
|
|
|
|
|
|||||
| Net increase (decrease) in net assets | 177,950 | 54 | ||||||
| Net Assets | ||||||||
| Beginning of period |
126,508 | 126,454 | ||||||
|
|
|
|
|
|||||
| End of period | $ | 304,458 | $ | 126,508 | ||||
|
|
|
|
|
|||||
| Accumulated undistributed net investment income (loss) at end of period |
$ | (1,583 | ) | $ | (141 | ) | ||
| Supplemental—Other Information: | ||||||||
| Capital share transactions were as follows: | ||||||||
| Common Shares outstanding at beginning of period |
27,466,109 | 27,466,109 | ||||||
| Common Shares issued from plan of reorganization (Note 11) |
6,180,744 | — | ||||||
| Common Shares tendered (Note 7) |
(10,986,444 | ) | — | |||||
|
|
|
|
|
|||||
| Common Shares outstanding at end of period |
22,660,409 | 27,466,109 | ||||||
|
|
|
|
|
|||||
| (1) | Please note that the tax status of our distributions is determined at the end of the taxable year. However, based on interim data as of May 31, 2017, we estimate that 29% of distributions will represent net investment income, 43% will represent long-term capital gains and 28% will represent return of capital. Also refer to inside front cover for information on the Managed Distribution Plan. See Notes to Financial Statements. |
| (2) | On April 3, 2017, Virtus Total Return Fund (DCA) was reorganized into the Fund (f/k/a The Zweig Fund, Inc.). The activity in the table presented above is for the accounting survivor, DCA, for the periods prior to the date of the reorganization and for the post-reorganization fund thereafter. See Note 11 Plan of Reorganization in the Notes to Financial Statements. |
See Notes to Financial Statements
33
VIRTUS TOTAL RETURN FUND INC.
STATEMENT OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED MAY 31, 2017
($ reported in thousands)
| Increase (Decrease) in cash | ||||
| Cash Flows Provided by (Used for) Operating Activities: | ||||
| Net increase (decrease) in net assets resulting from operations |
$ | 30,541 | ||
|
|
|
|||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided/(used by) operating activities: |
||||
| Proceeds from sales and paydowns of long-term investments |
156,032 | |||
| (Increase) Decrease in investment securities sold receivable |
8,138 | |||
| Purchases of long-term investments |
(83,884 | ) | ||
| Increase (Decrease) in investment securities purchased payable |
(5,082 | ) | ||
| Net (purchases) or sales of short-term securities |
(6,144 | ) | ||
| Net (purchases) or sales in purchased options |
(4,517 | ) | ||
| Net purchases or (sales) in written options |
8,343 | |||
| Net change in unrealized (appreciation) depreciation on investments |
(11,826 | ) | ||
| Net realized (gains) loss from sales on investments |
(15,754 | ) | ||
| Return of capital distributions on investments |
156 | |||
| Amortization of premium and accretion of discounts on investments |
23 | |||
| (Increase) Decrease in deposits with prime broker |
(3,888 | ) | ||
| (Increase) Decrease in segregated cash |
(132 | ) | ||
| (Increase) Decrease in tax reclaims receivable |
(27 | ) | ||
| (Increase) Decrease in dividends and interest receivable |
43 | |||
| (Increase) Decrease in prepaid expenses |
(23 | ) | ||
| (Increase) Decrease in prepaid trustee retainer |
24 | |||
| Increase (Decrease) in affiliated expenses payable |
(47 | ) | ||
| Increase (Decrease) in non-affiliated expenses payable |
(45 | ) | ||
|
|
|
|||
| Cash provided by (used for) operating activities |
71,931 | |||
|
|
|
|||
| Cash provided by (used for) financing activities: | ||||
| Cash payments to reduce borrowings |
(15,500 | ) | ||
| Cash distributions paid to shareholders |
(5,277 | ) | ||
| Payments for tendered shares (Note 7) |
(53,513 | ) | ||
| Increase in cash overdraft from plan of reorganization |
(699 | ) | ||
|
|
|
|||
| Cash provided by (used for) financing activities: |
(74,989 | ) | ||
|
|
|
|||
| Net increase (decrease) in cash | (3,058 | ) | ||
|
|
|
|||
| Cash: | ||||
| Cash and foreign currency at beginning of period |
3,384 | |||
|
|
|
|||
| Cash and foreign currency at end of period |
$ | 326 | ||
|
|
|
|||
| Cash paid during the period for interest |
$ | 616 | ||
|
|
|
|||
| Noncash transactions from plan of reorganization: | ||||
| Borrowings |
$ | 73,500 | ||
| Investment in securities, identified cost |
$ | 273,080 | ||
| Written options, premiums received |
$ | 888 |
See Notes to Financial Statements
34
VIRTUS TOTAL RETURN FUND INC.
(Selected per share data and ratios for a share outstanding throughout each period)
| Six Months Ended May 31, 2017 (Unaudited)(9) |
Year Ended November 30, 2016(9) |
Fiscal Period Ended(8) November 30, 2015(9) |
Year Ended December 31, 2014(9) |
|||||||||||||
| PER SHARE OPERATING DATA: | ||||||||||||||||
| Net Asset Value, Beginning of Period |
$ | 11.78 | $ | 11.76 | $ | 12.99 | $ | 12.37 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Income from investment operations: | ||||||||||||||||
| Net Investment Income/(Loss)(2) |
0.12 | 0.41 | 0.46 | 0.82 | ||||||||||||
| Net Realized and Unrealized Gain/(Loss) |
2.01 | 0.63 | (0.67 | ) | 0.72 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total from investment operations |
2.13 | 1.04 | (0.21 | ) | 1.54 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Dividends and/or Distributions to Shareholders: | ||||||||||||||||
| Dividends from Net Investment Income |
(0.51 | ) | (1.02 | ) | (1.02 | ) | (0.92 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Dividends and Distributions to Shareholders |
(0.51 | ) | |
(1.02 |
) |
(1.02 | ) | (0.92 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Fund Share Transactions (Note 7) | ||||||||||||||||
| Anti-Dilutive impact of tender offer |
0.04 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Net Asset Value, End of Period |
$ | 13.44 | $ | 11.78 | $ | 11.76 | $ | 12.99 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Market Price, End of Period(3) |
$ | 12.09 | $ | 11.17 | $ | 9.87 | $ | 11.55 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Return, Net Asset Value(4) |
19.38 | %(7) | 10.09 | % | (0.92 | )%(6) | 13.59 | % | ||||||||
| Total Return, Market Value(1) |
13.20 | %(7) | 24.37 | % | (6.56 | )%(6) | 21.98 | % | ||||||||
| Net Assets, End of Period (000’s) |
$ | 304,458 | $ | 126,508 | $ | 126,454 | $ | 139,630 | ||||||||
| RATIOS/SUPPLEMENTAL DATA: | ||||||||||||||||
| Ratio of Total Expenses after interest expense and before expense waivers and earnings credits to Average Net Assets(5) |
2.83 | %(7)(10) | 2.33 | % | 1.97 | %(7) | 1.93 | % | ||||||||
| Ratio of Net Expenses to Average Net Assets(5) |
2.78 | %(7)(10) | 2.33 | % | 1.97 | %(7) | 1.93 | % | ||||||||
| Ratio of Net Investment Income/ (Loss) to Average Net Assets |
3.23 | %(7) | 3.44 | % | 3.90 | %(7) | 6.31 | % | ||||||||
| Portfolio Turnover Rate |
37 | %(6) | 60 | % | 32 | %(6) | 33 | % | ||||||||
| Bank Borrowings: | ||||||||||||||||
| Loan Outstanding, End of Period (000’s) |
$ | 105,000 | $ | 47,000 | $ | 43,500 | $ | 50,500 | ||||||||
| Asset Coverage for Loan Outstanding, End of Period |
390 | % | 369 | % | 389 | % | 377 | % | ||||||||
| (1) | Total investment return is calculated assuming a purchase of common shares of the opening of the first day and sale on the closing of the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. Total investment return is not annualized for periods of less than one year. Brokerage commissions that a shareholder may pay are not reflected. Total return does not reflect the deduction of taxes that a shareholder may pay on fund distributions or the sale of fund shares. |
| (2) | Calculated based on average shares outstanding. |
| (3) | Closing Price – New York Stock Exchange. |
| (4) | NAV return is calculated using the opening Net Asset Value of the Fund’s common stock on the first business day and the closing Net Asset Value of the Fund’s common stock on the last business day of each period reported. Dividends and distributions, if any, are assumed, for the purpose of this calculation, to be reinvested at prices obtained under the Fund’s Automatic Reinvestment and Cash Purchase Plan. |
See Notes to Financial Statements
35
VIRTUS TOTAL RETURN FUND INC.
FINANCIAL HIGHLIGHTS (Continued)
(Selected per share data and ratios for a share outstanding throughout each period)
| Year Ended December 31(1) | ||||||||||||
| 2013(9) | 2012(9) | 2011(9) | ||||||||||
| PER SHARE OPERATING DATA: | ||||||||||||
| Net Asset Value, Beginning of Period |
$ | 11.32 | $ | 10.38 | $ | 10.12 | ||||||
|
|
|
|
|
|
|
|||||||
| Income from investment operations: | ||||||||||||
| Net Investment Income/(Loss)(2) |
0.51 | 0.48 | 0.46 | |||||||||
| Net Realized and Unrealized Gain/(Loss) |
1.08 | 1.05 | 0.18 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total from investment operations |
1.59 | 1.53 | 0.64 | |||||||||
|
|
|
|
|
|
|
|||||||
| Dividends and/or Distributions to Shareholders: | ||||||||||||
| Dividends from Net Investment Income |
(0.54 | ) | (0.59 | ) | (0.38 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Total Dividends and Distributions to Shareholders |
(0.54 | ) | (0.59 | ) | (0.38 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net Asset Value, End of Period |
$ | 12.37 | $ | 11.32 | $ | 10.38 | ||||||
|
|
|
|
|
|
|
|||||||
| Market Price, End of Period(3) |
$ | 10.25 | $ | 9.89 | $ | 8.95 | ||||||
|
|
|
|
|
|
|
|||||||
| Total Return, Net Asset Value(4) |
15.02 | % | 16.05 | % | 6.73 | % | ||||||
| Total Return, Market Value(5) |
9.08 | % | 17.60 | % | 5.61 | % | ||||||
| Net Assets, End of Period (000’s) |
$ | 132,857 | $ | 121,681 | $ | 111,490 | ||||||
| RATIOS/SUPPLEMENTAL DATA: | ||||||||||||
| Ratio of Total Expenses After Interest Expense to Average Net Assets(6) |
2.01 | % | 1.99 | % | 1.38 | % | ||||||
| Ratio of Net Expenses to Average Net Assets(5) |
2.01 | % | 1.99 | % | 1.38 | % | ||||||
| Ratio of Net Investment Income/(Loss) to Average Net Assets |
4.42 | % | 4.51 | % | 4.42 | % | ||||||
| Portfolio Turnover Rate |
42 | % | 43 | % | 138 | % | ||||||
| Bank Borrowings: | ||||||||||||
| Loan Outstanding, End of Period (000’s) |
$ | 50,500 | $ | 42,500 | N/A | |||||||
| Asset Coverage for Loan Outstanding, End of Period |
360 | % | 386 | % | N/A | |||||||
| (5) | Ratio of total expenses, before interest expense on the line of credit, was 2.20% for the period ended May 31, 2017 and 1.87% for the year ended November 30, 2016, 1.61% for the fiscal period ended November 30, 2015, and 1.58%, 1.62% and 1.61%, for the periods ending December 31, 2014, 2013, and 2012, respectively. |
| (6) | Not Annualized. |
| (7) | Annualized. |
| (8) | During the period the Fund changed its fiscal year end from December 31 to November 30. |
| (9) | On April 3, 2017, Virtus Total Return Fund (DCA) was reorganized into the Fund (f/k/a The Zweig Fund, Inc.). The activity in the table presented above is for the accounting survivor, Virtus Total Return Fund (DCA), for the periods prior to the date of the reorganization and for the post-reorganization fund thereafter. The net asset values and other per share information have been restated for periods prior to the reorganization to reflect the share conversion ratio of 0.391206. See Note 11 Plan of Reorganization in the Notes to Financial Statements. |
| (10) | The Fund incurred certain non-recurring merger and tender offer costs in 2017. When excluding these costs, the Ratio of Total Expenses after interest expense and before expense waivers and earnings credits to Average Net Assets would be 2.44%, the Ratio of Net Expenses to Average Net Assets would be 2.39% and the Ratio of Net Investment Income / (Loss) to Average Net Assets would be 3.62%. |
See Notes to Financial Statements
36
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
MAY 31, 2017
Note 1. Organization
Virtus Total Return Fund Inc. (the “Fund”) is a closed-end, diversified management investment company registered under the Investment Company Act of 1940 (the “Act”). The Fund was incorporated under the laws of the State of Maryland on June 18, 1986. The Fund’s investment objective is capital appreciation, with income as a secondary objective.
Note 2. Significant Accounting Policies
The significant accounting policies consistently followed by the Fund in the preparation of its financial statements are summarized below and for derivatives, included in Note 3 below. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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.
| A. | Security Valuation: |
Security valuation procedures for the Fund, which include nightly price variance, as well as back-testing items such as bi-weekly unchanged price, monthly secondary source and transaction analysis, have been approved by the Board of Directors of the Fund (the “Board”, or the “Directors”). All internally fair valued securities are approved by a valuation committee appointed by the Board (the “Valuation Committee”). The Valuation Committee is comprised of certain members of management as identified to the Board and convenes independently from portfolio management. All internally fair valued securities, referred to below, are updated daily and reviewed in detail by the Valuation Committee monthly unless changes occur within the period. The Valuation Committee reviews the validity of the model inputs and any changes to the model. Fair valuations are reviewed quarterly by the Board.
The Fund utilizes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The Fund’s policy is to recognize transfers between levels at the end of the reporting period.
| • Level 1 – | quoted prices in active markets for identical securities (security types generally include listed equities). |
| • Level 2 – | prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| • Level 3 – | prices determined using significant unobservable inputs (including the Valuation Committee’s own assumptions in determining the fair value of investments). |
A description of the valuation techniques applied to the Fund’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows:
Equity securities are valued at the official closing price (typically last sale) on the exchange on which the securities are primarily traded or, if no closing price is available, at the last bid price and are categorized as Level 1 in the hierarchy. Restricted equity securities and private placements that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
37
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
Certain non-U.S. securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (“NAV”) (at the close of regular trading on the New York Stock Exchange (“NYSE”), generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases the Fund fair values non-U.S. securities using an independent pricing service which considers the correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as 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 restricted securities, are valued based on evaluated quotations received from independent pricing services or from dealers who make markets in such securities. For most bond types, the pricing service utilizes matrix pricing that considers one or more of the following factors: yield or price of bonds of comparable quality, coupon, maturity, current cash flows, type, and current day trade information, as well as dealer supplied prices. These valuations are generally categorized as Level 2 in the hierarchy. Structured debt instruments, such as mortgage-backed and asset-backed securities, may also incorporate collateral analysis and utilize cash flow models for valuation and are generally categorized as Level 2 in the hierarchy. Pricing services do not provide pricing for all securities and therefore indicative bids from dealers are utilized which are based on pricing models used by market makers in the security and are generally categorized as Level 2 in the hierarchy. Debt securities that are not widely traded, are illiquid, or are internally fair valued by the Valuation Committee, are generally categorized as Level 3 in the hierarchy.
Listed derivatives, such as options, that are actively traded are valued based on quoted prices from the exchange and are categorized as Level 1 in the hierarchy. Over-the- counter derivative contracts, which include forward currency contracts and equity-linked instruments, do not require material subjectivity as pricing inputs are observed from actively quoted markets and are categorized as Level 2 in the hierarchy.
Investments in open-end mutual funds are valued at NAV. Investments in closed-end funds are valued as of the close of regular trading on the NYSE each business day. Both are categorized as Level 1 in the hierarchy.
A summary of the inputs used to value the Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments for the Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
| B. | Security Transactions and Investment Income: |
Security transactions are recorded on the trade date. Realized gains and losses from sales of securities are determined on the identified cost basis. Dividend income is recognized on the ex-dividend date or, in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund
38
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
amortizes premiums and accretes discounts using the effective interest method. Any distributions from underlying funds are recorded with the character of the distributions as designated by the underlying funds.
Dividend income from investments in real estate investment trusts (“REITs”) is recorded using management’s estimate of the income included in distributions received from the REIT investments. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital and capital gains are only determined by each domestic REIT after its fiscal year-end, and may differ from the estimated amounts.
| C. | Income Taxes: |
The Fund is treated as a separate taxable entity. It is the Fund’s intention to comply with the requirements of Subchapter M of the Internal Revenue Code and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes or excise taxes has been made.
The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests.
Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. As of May 31, 2017, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations are from the year 2014 forward (with limited exceptions).
| D. | Dividends and Distributions to Shareholders: |
Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America.
The Fund has a Managed Distribution Plan which currently provides for the Fund to make a quarterly distribution of $0.361 per share. Distributions may represent earnings from net investment income, realized capital gains, or, if necessary, return of capital. Shareholders should not draw any conclusions about the Fund’s investment performance from the terms of the Fund’s Managed Distribution Plan.
| E. | Foreign Currency Translation: |
Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Fund does not isolate that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
39
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
| F. | Earnings Credit and Interest |
Through arrangements with the Fund’s custodian, the Fund either receives an earnings credit or interest on agreed upon target un-invested cash balances to reduce the Fund’s custody expenses. The credits are reflected as “Earnings credits from Custodian” and the interest is reflected under “Interest income” in the Fund’s Statements of Operations for the period, as applicable.
| G. | Loan Agreements |
The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Loan agreements are generally non-investment grade and often involve borrowers that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Loan agreements are typically senior in the corporate capital structure of the borrower. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When investing in loan participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan participation and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan.
The Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Loan agreements may involve foreign borrowers, and investments may be denominated in foreign currencies. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due.
The loan agreements have floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR (London Interbank Offered Rate), the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a loan agreement is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan agreement. Prepayment penalty fees are received upon the prepayment of a loan agreement by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
At May 31, 2017, all loan agreements held by the Fund were assignment loans.
| H. | Expenses |
Expenses incurred together by the Fund and other affiliated open- and closed-end funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expense to each fund or an alternative allocation method can be more appropriately used.
40
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
In addition to the net annual operating expenses that the Fund bears directly, the shareholders of the Fund indirectly bear the Fund’s pro rata expenses of any underlying open- and closed-end funds in which the Fund invests.
Note 3. Derivative Financial Instruments and Transactions
($ reported in thousands)
Disclosures about derivative instruments and hedging activities are intended to enable investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund’s results of operations and financial position. Summarized below is a specific type of derivative instrument used by the Fund.
| A. | Options contracts |
An options contract provides the purchaser with the right, but not the obligation, to buy (call option) or sell (put option) a financial instrument at an agreed upon price. The Fund pursues an option income strategy whereby it purchases and sells out-of-the money puts and calls, creating an options spread designed to generate a consistent level of option cash flow which should result in additional yield. The Fund is subject to equity price risk in the normal course of pursuing its investment objectives.
When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an asset. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The asset or liability is adjusted daily to reflect the current market value of the option. Holdings of the Fund designated to cover outstanding written options are noted in the Schedule of Investments. Purchased options are reported as an asset within “Investment in securities at value,” and written options are reported as a liability within “Written options at value” in the Statement of Assets and Liabilities. Changes in value of the purchased option are included in “Net change in unrealized appreciation (depreciation) on investments” in the Statement of Operations. Changes in value of written options are included in “Net change in unrealized appreciation (depreciation) on written options”.
If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is recorded as an adjustment to the proceeds from the sale or the cost basis of the purchase. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in “Net realized gain (loss) on investments” in the Statement of Operations. Gain or loss on written options is presented separately as “Net realized gain (loss) on written options” in the Statement of Operations.
The risk in writing covered put options is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying options is that the Fund pays a premium whether or not the option is exercised. The use of such instruments may involve certain additional risks as a result of unanticipated movements in the market. Writers (sellers) of options are normally subject to unlimited risk of loss, as the seller will be obligated to deliver or take delivery of the security at a predetermined price which may, upon exercise of the option, be significantly different from the
41
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
then-market value. However, the Fund may limit its risk of loss when writing an option by purchasing an option similar to the one that is sold, except for the fact it is further “out of the money”.
The Fund invested in derivative instruments during the fiscal period in the form of writing put/call options and buying put/call options on the S&P 500® Index. The primary risk associated with these derivative instruments is equity risk.
The Fund had transactions in written options for the period ended May 31, 2017, as follows:
| Calls | Puts | |||||||||||||||
| Number of Contracts |
Premiums Received |
Number of Contracts |
Premiums Received |
|||||||||||||
| Written Options outstanding at November 30, 2016 |
1,302 | $ | 80 | 1,302 | $ | 396 | ||||||||||
| Options written |
25,084 | 1,901 | 25,084 | 7,757 | ||||||||||||
| Options transferred from merger |
|
2,225 |
|
|
158 |
|
|
2,225 |
|
|
731 |
| ||||
| Options closed |
(22,947 | ) | (1,722 | ) | (21,999 | ) | (6,898 | ) | ||||||||
| Options expired |
(2,422 | ) | (232 | ) | (3,370 | ) | (976 | ) | ||||||||
| Options exercised |
— | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Written Options outstanding at May 31, 2017 |
3,242 | $ | 185 | 3,242 | $ | 1,010 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The following is a summary of the Fund’s options contracts as presented in the Statement of Assets and Liabilities at May 31, 2017:
| Assets: Purchased options at value |
$ | 248 | (1) | |
| Liabilities: Written options at value |
(562 | ) | ||
|
|
|
|||
| Net asset (liability) balance |
$ | (314 | ) | |
|
|
|
The following is a summary of the Fund’s options contracts as presented in the Statement of Operations at May 31, 2017.
| Net realized gain (loss) on purchased options. . |
$ | (4,613 | )(2) | |
| Net realized gain (loss) on written options |
8,512 | |||
| Net change in unrealized appreciation (depreciation) on purchased options |
(209 | )(3) | ||
| Net change in unrealized appreciation (depreciation) on written options |
400 | |||
|
|
|
|||
| Total realized and unrealized gain (loss) on purchased and written options |
$ | 4,090 | ||
|
|
|
(1) Amount included in Investment in securities at value.
(2) Amount included in Net realized gain (loss) on investments.
(3) Amount included in Net change in unrealized appreciation (depreciation) on investments.
For the period ended May 31, 2017, the average daily premiums paid by the Fund for purchased options were $297 and the average daily premiums received by the Fund for written options were $632.
42
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
Note 4. Investment Advisory Fees and Other Transactions with Affiliates
($ reported in thousands)
| A. | Investment Advisory Fee: |
Virtus Investment Advisers, Inc. (the “Adviser”), an indirect wholly-owned subsidiary of Virtus Investment Partners, Inc. (“Virtus”), is the investment adviser of the Fund. The Adviser manages the Fund’s investment program and general operations of the Fund, including oversight of the Fund’s subadvisers.
The Investment Advisory Agreement (the “Agreement”) between the Adviser and the Fund provides that, subject to the direction of the Board of Directors of the Fund and the applicable provisions of the Act, the Adviser is responsible for the management of the Fund’s portfolio. The responsibility for making decisions to buy, sell, or hold a particular investment rests with the Adviser, subject to review by the Board of Directors and the applicable provisions of the Act. For the services provided by the Adviser under the Agreement, the Fund pays the Adviser a monthly fee equal, on an annual basis, of 0.85% of the Fund’s average daily managed assets. The Fund’s “managed assets” are equal to the total assets of the Fund minus the sum of all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings or other indebtedness, entered into for the purpose of creating financial leverage).
| B. | Subadvisers |
Duff & Phelps Investment Management Co. (“DPIM”), an indirect wholly-owned subsidiary of Virtus, is the subadviser of the equity portion of the Fund’s portfolio, and Newfleet Asset Management LLC (“Newfleet”), an indirect wholly-owned subsidiary of Virtus, is the subadviser of the fixed income portion and the options overlay strategy of the Fund’s portfolio. The subadvisers manage the investments of the Fund for which they are paid a fee by the Adviser.
| C. | Administration Services: |
Virtus Fund Services, LLC, an indirect wholly-owned subsidiary of Virtus, serves as administrator to the Fund. For the services provided by the administrator under the Administration Agreement, the Fund pays the administrator a monthly asset-based fee calculated on the Fund’s average daily managed assets. On December 1, 2016, the Board of the Fund approved an amendment to the Administration Agreement, pursuant to which the fee paid by the Fund increased effective December 2, 2016.
In addition, the Board approved a new Sub-Administration and Accounting Services Agreement, whereby the Fund will pay a monthly asset-based fee calculated on the Fund’s average daily managed assets. Previously, the sub-administration fee was paid directly by Virtus Fund Services.
Virtus Fund Services has contractually committed, for a period of two years from December 2, 2016 to waive receipt of a portion of its fee, to offset the fee increases to the Fund. The waiver is calculated on the Fund’s average daily managed assets and is paid monthly. The administration fee, sub-administration fees and administration fee waiver are all reported in the Statement of Operations.
| D. | Directors Fee: |
For the period ended May 31, 2017, the Fund incurred director fees totaling $109, which are included in the Statement of Operations.
43
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
| E. | Affiliated Shareholder: |
At May 31, 2017, Virtus Partners, Inc. (a wholly-owned subsidiary of Virtus) held 733,554 shares of the Fund, which represent 3.24% of shares of common stock outstanding. The shares were purchased on April 28, 2017 at a price of $12.34 per share.
Note 5. Purchases and Sales of Securities
($ reported in thousands)
Purchases and sales of securities (excluding U.S. Government and agency securities and short-term investments) for the period ended May 31, 2017, were as follows:
| Purchases | Sales | |||||||
| $ | 58,918 | $ | 129,797 | |||||
The purchases and sales of long-term U.S. Government and agency securities for the period ended May 31, 2017 were as follows:
| Purchases | Sales | |||||||
| $ | 24,966 | $ | 26,235 | |||||
Note 6. Indemnifications
Under the Fund’s organizational documents, its directors and officers are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide a variety of indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund and that have not occurred. However, the Fund has not had prior claims or losses pursuant to such arrangements and expects the risk of loss to be remote.
Note 7. Capital Stock and Reinvestment Plan; Repurchase Program; Dividend Distributions; Tender Offers
At May 31, 2017, the Fund had one class of common stock, par value $0.10 per share, of which 200,000,000 shares are authorized and 22,660,409 shares are outstanding.
Registered shareholders may elect to have all distributions paid by check mailed directly to the shareholder by Computershare as dividend paying agent. Pursuant to the Automatic Reinvestment and Cash Purchase Plan (the “Plan”), shareholders not making such election will have all such amounts automatically reinvested by Computershare, as the Plan agent, in whole or fractional shares of the Fund, as the case may be. During the periods ended December 31, 2016 and May 31, 2017, there were no shares issued pursuant to the Plan.
Pursuant to the Board-approved stock repurchase program, the Fund may repurchase up to 20% of its outstanding shares in the open market at a discount to NAV. Since the inception of the program through the period ended May 31, 2017, the Fund has repurchased 12.9% of its shares outstanding.
On February 15, 2017, DCA announced the commencement of a 40% tender offer (10,986,443.69 shares) at a price equal to 99% of the DCA’s net asset value per share on the expiration date of the offer. The tender offer expired on March 15, 2017, at which time
44
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
the offer was oversubscribed. The Fund purchased the maximum number of shares covered by the offer price of $4.8708 per share, which represented a price equal to 99 percent of the net asset value per share as of the close of trading on the New York Stock Exchange on March 15, 2017. As a result of the tender offer, $53,513 (reported in thousands) was distributed to shareholders and there was an accretion of $0.04 to the net asset value per share of all the outstanding shares after the close of the tender offer.
Note 8. Borrowings
($ reported in thousands)
On December 23, 2016, the Fund entered into a new Credit Agreement (the “Agreement”), replacing its previous agreement, with a commercial bank (the “Bank”) that allows the Fund to borrow cash from the Bank, up to a limit of $105,000,000 (“Commitment Amount”). On February 28, 2017, the Board approved and the Bank agreed to increase the commitment amount to $130,000,000 to be effective contemporaneously with the reorganization (See Note 11). Borrowings under the Agreement are collateralized by investments of the Fund. The Agreement results in the Fund being subject to certain covenants including asset coverage and portfolio composition (among others). If the Fund fails to meet or maintain certain covenants as required under the Agreement, the Fund may be required to repay immediately, in part or in full, the loan balance outstanding under the Agreement, necessitating the sale of securities at potentially inopportune times. Interest is charged at LIBOR (London Interbank Offered Rate) plus an additional percentage rate on the amount borrowed. Commitment fees are charged on the undrawn balance, if less than 75% of the Commitment Amount is outstanding as a loan to the Fund. There were no commitment fees paid or accrued for the period ended May 31, 2017. The Agreement has a term of 364 days and is renewable by the Fund with the Bank’s consent and approval of the Board. The Agreement can also be converted to a 179 day fixed term facility, one time at the Fund’s option. The Bank has the ability to require repayment of outstanding borrowings under the Agreement upon certain circumstances such as an event of default.
For the period ended May 31, 2017, the average daily borrowings under the Agreement and the weighted daily average interest rate were $65,060 and 1.66%, respectively. At May 31, 2017, the amount of such outstanding borrowings was as follows:
| Outstanding Borrowings |
Interest Rate |
|||||||
| $ | 105,000 | 1.90 | % | |||||
Note 9. Credit Risk and Asset Concentrations
In countries with limited or developing markets, investments may present greater risks than in more developed markets and the prices of such investments may be volatile. The consequences of political, social or economic changes in these markets may have disruptive effects on the market prices of these investments and the income they generate, as well as the Fund’s ability to repatriate such amounts.
High-yield/high risk securities typically entail greater price volatility and/or principal and interest rate risk. There is a greater chance that an issuer will not be able to make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield/high-risk securities may be complex, and as a result, it may be more difficult for the Adviser and/or subadviser to accurately predict risk.
45
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
The Fund may invest a high percentage of its assets in specific sectors of the market in the pursuit of its investment objective. Fluctuations in these sectors of concentration may have a greater impact on the Fund, positive or negative, than if the Fund did not concentrate its investments in such sectors.
The Fund borrows through its line of credit for the purpose of leveraging its portfolio. While leverage presents opportunities for increasing the Fund’s total return, it also has the effect of potentially increasing losses. Accordingly, any event which adversely affects the value of an investment held by the Fund would be magnified to the extent the Fund is leveraged.
Note 10. Regulatory Matters and Litigation
From time to time, the Adviser, DPIM, Newfleet and/or their respective affiliates may be involved in litigation and arbitration as well as examinations and investigations by various regulatory bodies, including the SEC, involving compliance with, among other things, securities laws, client investment guidelines, laws governing the activities of broker-dealers and other laws and regulations affecting their products and other activities. At this time, the Adviser believes that the outcomes of such matters are not likely, either individually or in the aggregate, to be material to these financial statements.
Note 11. Plan of Reorganization
($ reported in thousands)
On
March 7, 2017, the shareholders of Virtus Total Return Fund (the “Merged Fund”) and the shareholders of the Fund approved an Agreement and Plan of Reorganization of the Merged Fund into the Fund, pursuant to which the Fund
acquired substantially all of the assets and assumed substantially all of the liabilities of the Merged Fund in exchange for an equal aggregate value of the Fund’s shares. The Fund is the legal surviving entity in the reorganization, while the
Merged Fund is the accounting survivor or continuing portfolio for purposes of financial and performance history in the post-reorganization fund.
Each shareholder of the Merged Fund received shares of the Fund equal to the net asset value of their Merged Fund shares, as determined at the close of business on March 31, 2017. The purpose of the reorganization was to eliminate the offering of overlapping Funds with similar investment objectives and similar investment strategies within the Virtus Fund Complex, while simultaneously creating economies of scale for the surviving Fund with the intent to lower Fund expenses. The reorganization was accomplished by a tax-free exchange of shares and was effective on April 3, 2017. The share transactions associated with the reorganization are as follows:
|
Merged Fund |
Shares |
Merged Fund |
Conversion | |||
| 16,479,666 | 6,446,947 | $81,640 | 0.391206 |
46
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
The net assets and composition of net assets for the Fund on March 31, 2017, were as follows:
| The |
Common Stock |
Capital paid in |
Undistributed |
Accumulated |
Net Unrealized | |||||
| $205,317 | $1,621 | $201,829 | $(10,044) | $7,943 | $3,968 |
For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Merged Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes. The aggregate net assets of the Fund immediately after the acquisition amounted to $286,957.
Assuming the acquisition had been completed on December 1, 2016, the beginning of the annual reporting period of the Fund, the pro forma results of operations for the period ended May 31, 2017 would have been as follows:
| Net investment income (loss) | $ | 4,268 | (a) | |
| Net realized and unrealized gain (loss) on investments | $ | 47,950 | (b) | |
|
|
|
|||
| Net increase (decrease) in assets from operations | $ | 52,218 | ||
|
|
|
| (a) | $3,370, as reported in the Statement of Operations, plus $898 Net Investment Income from the Fund pre-reorganization. |
| (b) | $31,556, as reported in the Statement of Operations, plus $16,394 Net Realized and Unrealized Gain (Loss) on Investments from the Fund pre-reorganization. |
Because the Fund and the Merged Fund have been managed as an integrated single fund since the acquisition was completed, it is also not feasible to separate the income/(losses) and gains/(losses) of the Merged Fund that have been included in the Fund’s Statement of Operations since March 31, 2017.
Note 12. Federal Income Tax Information
($ reported in thousands)
At May 31, 2017, federal tax cost and aggregate gross unrealized appreciation (depreciation) of securities held by the Fund were as follows:
| Federal Tax Cost |
Unrealized Appreciation |
Unrealized Depreciation |
Net Unrealized Appreciation (Depreciation) |
|||||||||||||
| Investments |
$ | 379,680 | $ | 29,572 | $ | (7,400) | $ | 22,172 | ||||||||
| Written Options |
(1,195) | (652) | 19 | 562 | ||||||||||||
Note 13. Illiquid and Restricted Securities
Investments generally are considered illiquid if they cannot be disposed of within seven days in the ordinary course of business at the approximate amount at which such securities have been valued by the Fund. Additionally, the following information is also considered in determining liquidity: the frequency of trades and quotes for the investment, whether the investment is listed for trading on a recognized domestic exchange and/or whether two or more brokers are willing to purchase or sell the security at a comparable price, the extent of
47
VIRTUS TOTAL RETURN FUND INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)
MAY 31, 2017
market making activity in the investment and the nature of the market for investment. Illiquid securities are footnoted as such at the end of the Fund’s Schedule of Investments, where applicable. However, a portion of such footnoted securities could be liquid where it is determined that some, though not all, of the position could be disposed of within seven days in the ordinary course of business at the approximate amount at which such securities have been valued by the Fund.
Restricted securities are illiquid securities, as defined above, not registered under the Securities Act of 1933, as amended (the “1933 Act”). Generally, 144A securities are excluded from this category, except where defined as illiquid.
The Fund will bear any costs, including those involved in registration under the 1933 Act, in connection with the disposition of such securities.
The Fund held securities considered to be illiquid at May 31, 2017, with an aggregate value of $198 representing 0.06% of the Fund’s net assets.
At May 31, 2017, the Fund did not hold any securities that are both illiquid and restricted.
Note 14. Recent Accounting Pronouncement
On October 13, 2016, the SEC amended existing rules intended to modernize reporting and disclosure of information. Certain of these amendments relate to Regulation S-X which sets forth the requisite form and content of financial statements. At this time, management is evaluating the implications of adopting these amendments and their impact on the financial statements and accompany notes.
Note 15. Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that the following subsequent events that require recognition or disclosure in these financial statements.
On May 26, 2017, the Fund announced the commencement of a 5% tender offer (1,133,020.45 shares) at a price equal to 98% of the Fund’s net asset value per share on the expiration date of the offer. The tender offer expired on June 23, 2017. The Fund purchased the maximum number of shares covered by the offer price of $13.1908 per share, which represented a price equal to 98% of the net asset value per share as of the close of trading on the New York Stock Exchange on June 23, 2017. As a result of the tender offer, payment was made on June 30, 2017, at which time 1,133,020.45 shares outstanding were retired.
On June 7, 2017, the Fund announced the quarterly distribution of $0.361 per share to shareholders of record on July 13, 2017. The distribution has an ex-dividend date of July 11, 2017 and will be paid on July 20, 2017.
48
KEY INFORMATION
Shareholder Relations: 1-866-270-7788
For general information and literature, as well as updates on net asset value, share price, major industry groups and other key information, shareholders may contact the above- referenced toll-free number.
REINVESTMENT PLAN
We urge shareholders who want to take advantage of this plan and whose shares are held in “Street Name,” to consult your broker as soon as possible to determine if you must change registration into your own name to participate.
REPURCHASE OF SECURITIES
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may from time to time purchase its shares of common stock in the open market when Fund shares are trading at a discount from their net asset value.
PROXY VOTING INFORMATION (FORM N-PX)
The Adviser, DPIM and Newfleet vote proxies relating to portfolio securities in accordance with procedures that have been approved by the Fund’s Board of Directors. You may obtain a description of these procedures, along with information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, free of charge, by calling toll-free 1-866-270-7788. This information is also available through the SEC’s website at http://www.sec.gov.
FORM N-Q INFORMATION
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Form N-Q is available on the SEC’s website at http://www.sec.gov. Form N-Q may be reviewed and copied at the SEC’s Public Reference Room. Information on the operation of the SEC’s Public Reference Room can be obtained by calling toll-free 1-800-SEC-0330.
CERTIFICATION
The Fund’s Chief Executive Officer (“CEO”) will file the required annual CEO certification regarding compliance with the NYSE’s listing standards no more than 30 days after the Fund’s annual shareholder meeting. The Fund has included the certifications of the Fund’s CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.
49
Report on Annual Meeting of Shareholders
The Annual Meeting of Shareholders of Virtus Total Return Fund Inc. was held on June 6, 2017. The meeting was held for purposes of electing two (2) nominees to the Board of Directors for a three-year term, or until a successor has been duly elected and qualified.
The results were as follows:
| Election of Directors |
Votes For |
Votes Withheld |
||||||
| R. Keith Walton |
16,392,375 | 1,267,230 | ||||||
| Brian T. Zino |
16,376,111 | 1,283,495 | ||||||
Based on the foregoing, R. Keith Walton and Brian T. Zino were re-elected to the Board of Directors. The Fund’s other Directors who continue in office are George R. Aylward, Philip R. McLoughlin, William R. Moyer, James M. Oates, James B. Rogers, Jr. and William H. Wright II (advisory member).
50
VIRTUS TOTAL RETURN FUND INC.
101 Munson Street
Greenfield, MA 01301-9668
This report is transmitted to the shareholders of Virtus Total Return Fund Inc. for their information. This is not a prospectus, circular, or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
| Item 2. | Code of Ethics. |
Not applicable.
| Item 3. | Audit Committee Financial Expert. |
Not applicable.
| Item 4. | Principal Accountant Fees and Services. |
Not applicable.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | Investments. |
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
| (b) | Not applicable. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
| (a) | Not applicable. |
| (b) | Randle L. Smith, CFA, senior portfolio manager and senior analyst at Duff & Phelps Investment Management Co., a subadviser to the fund, retired as co-portfolio manager of the fund, effective June 30, 2017. Connie M. Luecke, CFA, senior portfolio manager, of Duff & Phelps and David L. Albrycht, CFA, chief investment officer, Newfleet Asset Management, LLC, will continue as the fund’s co-portfolio managers. Duff & Phelps and Newfleet are subadvisers of the fund. |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
REGISTRANT PURCHASES OF EQUITY SECURITIES
| Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| December 2016 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| January 2017 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| February 2017 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| March 2017 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| April 2017 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| May 2017 |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
| Total |
0 | $ | 0 | 0 | 1,473,841 | |||||||||||
Footnote columns (c) and (d) of the table, by disclosing the following information in the aggregate for all plans or programs publicly announced:
| a. | The date each plan or program was announced: 3/13/12 and expanded 9/19/12 and 2/10/14 |
| b. | The dollar amount (or share or unit amount) approved: 4,392,838 |
| c. | The expiration date (if any) of each plan or program: None |
| d. | Each plan or program that has expired during the period covered by the table: None |
| e. | Each plan or program the registrant has determined to terminate prior to expiration, or under which the registrant does not intend to make further purchases: None. |
| Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrant’s Board of Trustees that were implemented after the Registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
| Item 11. | Controls and Procedures. |
| (a) | The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
| (b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| Item 12. | Exhibits. |
| (a)(1) | Not applicable. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (a)(3) | Not applicable. |
| (b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (c) | Copies of the Registrant’s notices to shareholders pursuant to Rule 19a-1 under the 1940 Act which accompanied distributions paid from December 1, 2016 through May 31, 2017 pursuant to the Registrant’s Managed Distribution Plan are filed herewith as required by the terms of the Registrant’s exemptive order issued on August 26, 2008. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Virtus Total Return Fund Inc. (fka The Zweig Fund, Inc.) |
| By (Signature and Title)* |
/s/ George R. Aylward | |
| George R. Aylward, President | ||
| (principal executive officer) | ||
| Date 8/4/2017 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title)* | /s/ George R. Aylward | |
| George R. Aylward, President | ||
| (principal executive officer) | ||
|
Date 8/4/2017 |
||
|
By (Signature and Title)* |
/s/ W. Patrick Bradley | |
| W. Patrick Bradley, Executive Vice President, | ||
| Chief Financial Officer, and Treasurer | ||
| (principal financial officer) | ||
| Date 8/4/2017 | ||
| * | Print the name and title of each signing officer under his or her signature. |