EDF Virtus Stone Harbor Emerging Markets Income Fund

VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

KEY INVESTMENT TERMS (Unaudited)

May 31, 2022

Credit Default Swap (“CDS”)

A CDS is a financial derivative contract that shifts the credit risk of a fixed income product to a counterparty in exchange for a premium. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, may expect to receive a payoff if the asset defaults.

Hard Currency

Hard currency refers to a currency that is generally issued by developed countries, globally traded, and seen as politically and economically stable.

Interest Rate Swap (“IRS”)

An interest rate swap is a type of a derivative contract through which two counterparties agree to exchange one stream of future interest payments for another, based on a specified principal amount. In most cases, interest rate swaps include the exchange of a fixed interest rate for a floating rate.

J.P. Morgan CEMBI Broad Diversified Index

The J.P. Morgan CEMBI Broad Diversified Index tracks total returns of U.S. dollar-denominated debt instruments issued by corporate entities in emerging market countries and consists of an investable universe of corporate bonds. The minimum amount outstanding required is $300 million for the J.P. Morgan CEMBI Broad Diversified. The J.P. Morgan CEMBI Broad Diversified limits the weights of those index countries with larger corporate debt stocks by only including a specified portion of these countries’ eligible current face amounts of debt outstanding. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

J.P. Morgan EMBI Global Diversified Index

The J.P. Morgan EMBI Global Diversified Index (EMBI Global Diversified) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. The index limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts outstanding. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

J.P. Morgan GBI-EM Global Diversified Index

The J.P. Morgan GBI-EM Global Diversified Index consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. The weightings among the countries are more evenly distributed within this index. The index is calculated on a total return basis. The index is unmanaged, its returns do not reflect any fees, expenses, or sales charges, and is not available for direct investment.

Joint Stock Company (“JSC”)

A joint-stock company is a business entity in which shares of the company’s stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.

London Interbank Offered Rate (“LIBOR”)

A benchmark rate that some of the world’s leading banks charge each other for short-term loans and that serves as the first step to calculating interest rates on various loans throughout the world.

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VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

KEY INVESTMENT TERMS (Unaudited) (Continued) May 31, 2022

Payment-in-Kind Security (“PIK”)

A bond which pays interest in the form of additional bonds, or preferred stock which pays dividends in the form of additional preferred stock.

Secured Overnight Financing Rate (“SOFR”)

A broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities.

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See Notes to Financial Statements

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See Notes to Financial Statements

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See Notes to Financial Statements

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See Notes to Financial Statements

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VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

SCHEDULE OF INVESTMENTS (Unaudited) (Continued)

May 31, 2022

($ reported in thousands)

(2)

Other financial instruments are derivative instruments reflected in the Schedule of Investments. The derivatives shown in this table are reported at their unrealized appreciation/(depreciation) at measurement date, which represents the change in the contract’s value from trade date. For liabilities arising from reverse repurchase agreements, the carrying amount approximates fair value due to the relatively short-term maturity of these financial instruments. As of May 31, 2022, the liabilities related to reverse repurchase agreements used level 2 inputs.

There were no securities valued using quoted prices (Level 1) at May 31, 2022.

Securities held by the Fund with an end of period value of $244 were transferred from Level 2 to Level 3 due to a decrease in trading activities at period end.

Some of the Fund’s investments that were categorized as Level 3 were valued utilizing third party pricing information without adjustment. Such valuations are based on unobservable inputs. A significant change in third party information could result in a significantly lower or higher value of Level 3 investments.

The following is a reconciliation of assets of the Fund for Level 3 investments for which significant unobservable inputs were used to determine fair value.

	Total		Corporate Bonds and Notes		Credit Linked Notes		Foreign Government Securities
Investments in Securities
Balance as of November 30, 2021:	$  4,794		$ — (a)		$ 4,794		$  —
Accrued discount/(premium)	(25)		—		(25)		—
Net realized gain (loss)	(439)		—		5		(444)
Net change in unrealized appreciation (depreciation)(b)	(1,239)		—		(91)		(1,148)
Purchases	3,600		—		—		3,600
Sales (c)	(2,209)		—		(453)		(1,756)
Transfers into Level 3(d)	244		—		—		244
Balance as of May 31, 2022	$  4,726		$  —(a)		$ 4,230		$  496

See Notes to Financial Statements

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See Notes to Financial Statements

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See Notes to Financial Statements

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See Notes to Financial Statements

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VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

FINANCIAL HIGHLIGHTS (Continued)

SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING

THROUGHOUT EACH PERIOD

(4)	Annualized for periods less than one year.
(5)	Ratio of net expenses before interest expense to average net assets on borrowings was 2.10% for the six months ended May 31, 2022, and 1.96%, 1.99%, 1.59%, 1.88% and 1.85% for the years ended November 30, 2021, 2020, 2019, 2018 and 2017, respectively.
(6)	Represents value of net assets plus the borrowings at the end of the period divided by the borrowings at the end of the period multiplied by $1,000.

See Notes to Financial Statements

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VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

at the last bid price and are categorized as Level 1 in the hierarchy. Illiquid, restricted equity securities and illiquid private placements are internally fair valued by the Valuation Committee, and are generally categorized as Level 3 in the hierarchy.

Certain non-U.S. securities may be fair valued in cases where closing prices are not readily available or are deemed not reflective of readily available market prices. For example, significant events (such as movement in the U.S. securities market, or other regional and local developments) may occur between the time that non-U.S. markets close (where the security is principally traded) and the time that the Fund calculates its net asset value (“NAV”) at the close of regular trading on the New York Stock Exchange (“NYSE”) (generally 4 p.m. Eastern time) that may impact the value of securities traded in these non-U.S. markets. In such cases, the Fund fair values non-U.S. securities using an independent pricing service which considers the correlation of the trading patterns of the non-U.S. security to the intraday trading in the U.S. markets for investments such as ADRs, financial futures, 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.

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

Investments in open-end mutual funds are valued at NAV. Investments in closed-end funds and ETFs are valued as of the close of regular trading on the NYSE each business day. Each is categorized as Level 1 in the hierarchy.

A summary of the inputs used to value the Fund’s net assets by each major security type is disclosed at the end of the Schedule of Investments for the Fund. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

B.	Security Transactions and Investment Income
	Security transactions are recorded on the trade date. Realized gains and losses from the sale of securities are determined on the identified cost basis. Dividend income and capital gain distributions are recognized on the ex-dividend date, or in the case of certain foreign securities, as soon as the Fund is notified. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes discounts using the effective interest method. Premiums on callable debt securities are amortized to interest income to the earliest call date using the effective interest method.
	Any distributions from underlying funds are recorded in accordance with the character of the distributions as designated by the underlying funds.
C.	Income Taxes
	It is the Fund’s intention to comply with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) and to distribute substantially all of its taxable income and capital gains, if any, to its shareholders. Therefore, no provision for federal income taxes or excise taxes has been made.
	The Fund may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable based upon current interpretations of the tax rules and regulations that exist in the markets in which it invests.
	Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. The Fund’s U.S. federal income tax return is generally subject to examination by the Internal Revenue Service for a period of three years after it is filed. State, local and/or non-U.S. tax returns and/or other filings may be subject to examination for different periods, depending upon the tax rules of each applicable jurisdiction.
D.	Distributions to Shareholders
	The Fund declares distributions on a monthly basis. Distributions are recorded by the Fund on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP.
	At the beginning of the six-month period ended May 31, 2022, the Fund had a Managed Distribution Plan which provided for the Fund to make a monthly distribution of $0.06 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. On April 8, 2022, the Fund announced the removal of its managed distribution plan, effective with the May distribution. The Fund intends to maintain its level payout at the current distribution rate of $0.06 per share.

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

E.	Expenses
	Expenses incurred together by the Fund and other affiliated mutual funds are allocated in proportion to the net assets of each such fund, except where allocation of direct expenses to each fund or an alternative allocation method can be more appropriately used.
	In addition to the net annual operating expenses that the Fund bears directly, the shareholders of the Fund indirectly bear the pro-rata expenses of any underlying mutual funds in which the Fund invests.
F.	Foreign Currency Transactions
	Non-U.S. investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the foreign currency exchange rate effective at the end of the reporting period. Cost of investments is translated at the currency exchange rate effective at the trade date. The gain or loss resulting from a change in currency exchange rates between the trade and settlement date of a portfolio transaction is treated as a gain or loss on foreign currency. Likewise, the gain or loss resulting from a change in currency exchange rates between the date income is accrued and the date it is paid is treated as a gain or loss on foreign currency. The Fund bifurcates that portion of the results of operations arising from changes in foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on foreign currency transactions.
G.	Credit Linked Notes
	The Fund may invest in credit linked notes to obtain economic exposure to high yield, emerging markets or other securities. Investments in a credit linked note typically provide the holder with a return based on the return of an underlying reference instrument, such as an emerging market bond. Like an investment in a bond, investments in credit linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal at the end of the term of the security. In addition to the risks associated with the underlying reference instrument, an investment in a credit linked note is also subject to liquidity risk, market risk, interest rate risk and the risk that the counterparty will be unwilling or unable to meet its obligations under the note.
H.	Payment-In-Kind Securities
	The Fund may invest in payment-in-kind securities, which are debt or preferred stock securities that require or permit payment of interest in the form of additional securities. Payment-in-kind securities allow the issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater risk than securities that pay interest currently or in cash.
I.	Leveraged Loans
	The Fund may invest in direct debt instruments which are interests in amounts owed by a corporate, governmental, or other borrower to lenders or lending syndicates. Leveraged loans are generally non-investment grade and often involve borrowers that are highly leveraged. The Fund may invest in obligations of borrowers who are in bankruptcy proceedings. Leveraged loans are typically senior in the corporate capital structure of the borrower. A loan is often administered by a bank or other financial

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

	institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the leveraged loan. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When investing in loan participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan participation and only upon receipt by the lender of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the leveraged loan with the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the leveraged loan. When the Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan.
	The Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. Leveraged loans may involve foreign borrowers and investments may be denominated in foreign currencies. Direct indebtedness of emerging countries involves a risk that the government entities responsible for the repayment of the debt may be unable, or unwilling, to pay the principal and interest when due.
	The leveraged loans have floating rate loan interests which generally pay interest at rates that are periodically determined by reference to a base lending rate plus a premium. The base lending rates are generally LIBOR, SOFR, the prime rate offered by one or more U.S. banks or the certificate of deposit rate. When a leveraged loan is purchased the Fund may pay an assignment fee. On an ongoing basis, the Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a leveraged loan. Prepayment penalty fees are received upon the prepayment of a leveraged loan by a borrower. Prepayment penalty, facility, commitment, consent and amendment fees are recorded to income as earned or paid.
J.	Cash and Cash Equivalents
	Cash and cash equivalents include deposits held at financial institutions, and are inclusive of dollar denominated cash, foreign currency, cash collateral pledged for swaps, and deposits with brokers for reverse repurchase agreements.

Note 3. Derivative Financial Instruments and Transactions

($ reported in thousands)

Disclosures about derivative instruments and hedging activities are intended to enable investors to understand how and why the Fund uses derivatives, how derivatives are accounted for, and how derivative instruments affect the Fund’s results of operations and financial position. Summarized below are such disclosures and accounting policies for each specific type of derivative instrument used by the Fund.

A.

Forward Foreign Currency Exchange Contracts

A forward foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Forward foreign currency exchange contracts, when used by the Fund, help to manage the overall exposure to the currencies in which some of the investments held by the Fund are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized appreciation or depreciation. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

	value at the time it was opened and the value at the time it was closed. The use of forward foreign currency exchange contracts involves the risk that the value of the contract changes unfavorably due to movements in the value of the referenced foreign currencies. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in U.S. dollars without the delivery of foreign currency.
	During the period ended May 31, 2022, the Fund entered into forward foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to, or hedge exposure away from, foreign currencies (foreign currency exchange rate risk). Forward foreign currency contracts outstanding at period end, if any, are listed after the Fund’s Schedule of Investments.
B.	Swaps
	The Fund enters into swap agreements, in which the Fund and a counterparty agree either to make periodic net payments on a specified notional amount or a net payment upon termination. Swap agreements are negotiated in the OTC market and may be entered into as a bilateral contract (“OTC swaps”) or centrally cleared (“centrally cleared swaps”). The value of the swap is reflected on the Statement of Assets and Liabilities as “Swaps at value”. Swaps are marked-to-market daily and changes in value are recorded as “Net change in unrealized appreciation (depreciation) on swaps” in the Statement of Operations.
	Any upfront premiums paid are recorded as assets and any upfront fees received are recorded as liabilities and are shown under “Swaps at value” in the Statement of Assets and Liabilities and are amortized over the term of the swap. When a swap is terminated, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund’s basis in the contract, if any. Generally, the basis of the contracts is the unamortized premium received or paid. Cash settlements between the Fund and the counterparty are recognized as “Net realized gain (loss) on swaps” in the Statement of Operations. Swap contracts outstanding at period end, if any, are listed after the Fund’s Schedule of Investments.
	In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is submitted to a central counterparty (the “CCP”) and the Fund’s counterparty on the swap agreement becomes the CCP. The Fund is required to interface with the CCP through a clearing broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the clearing broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap.
	Securities deposited as margin are designated on the Schedule of Investments and cash deposited is recorded on the Statement of Assets and Liabilities as “Deposits with broker”.
	Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

	Credit default swaps – The Fund may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on a combination or basket of single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the protection seller to make specific payment should a negative credit event take place with respect to any of the referenced entities (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Fund will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. The Fund may enter into credit default swaps to manage their exposure to the market or certain sectors of the market, to reduce their risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which they are not otherwise exposed (credit risk).
	During the period ended May 31, 2022, the Fund utilized single name credit default swaps to short individual securities or to gain exposure to a credit or asset-backed index.
	Interest rate swaps – Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. Certain Funds may enter into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk).
	During the period ended May 31, 2022, the Fund utilized interest rate swaps to gain exposure to interest rates or to hedge interest rate risk within its portfolio.

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NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

	bilateral agreement between the Fund and a counterparty that governs certain OTC derivatives and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails to meet the terms of its ISDA Master Agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.
D.	Collateral Requirements and Master Netting Agreements (“MNA”)
	For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark-to-market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Fund and the counterparty.
	Cash collateral that has been pledged to cover obligations of the Fund and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as cash pledged as collateral and cash received as collateral, respectively. Non-cash collateral pledged by the Fund, if any, is noted in the Schedule of Investments. Typically, the Fund and counterparties are not permitted to sell, re-pledge or use the collateral they receive. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance. The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it believes have the financial resources to honor its obligations and by monitoring the financial stability of those counterparties.
	For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities.

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May 31, 2022

The following table presents the Fund’s derivative assets and liabilities and reverse repurchase agreements by counterparty net of amounts available for offset under a MNA and net of the related collateral received/pledged by the Fund as of May 31, 2022:

    

At May 31, 2022, the Fund’s derivative assets and liabilities (by type) and reverse repurchase agreements are as follows:
	Assets	Liabilities
Derivative Financial Instruments:
Forward foreign currency exchange contracts	$ —	$ 109
Centrally cleared swaps	1,036	1,684
OTC swaps	258	6,491
Reverse repurchase agreements	—	37,897
Total derivative assets and liabilities in the Statements of Assets and Liabilities	$ 1,294	$46,161
Derivatives not subject to a MNA or similar agreement	(1,036)	(1,684)
Total assets and liabilities subject to a MNA	$ 258	$44,497

The following tables present the Fund’s derivative assets and liabilities and reverse repurchase agreements by counterparty net of amounts available for offset under a MNA and net of the related collateral received/pledged by the Fund as of May 31, 2022.

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May 31, 2022

	interest, commitment, amendment and renewal expenses on credit or redemption facilities), taxes, extraordinary, unusual or infrequently occurring expenses (such as litigation), costs related to share offerings, brokerage commissions, expenses incurred in connection with any merger or reorganization, Underlying Fund Expenses and dividend expenses, if any (each expressed as a percentage of average daily net assets attributable to common shares).
D.	Administration Services
	Effective April 11, 2022, Virtus Fund Services, LLC (“VFS”), an indirect, wholly-owned subsidiary of Virtus, serves as administrator to the Fund. Prior to April 11, 2022, ALPS Fund Services, Inc. served as administrator to the Fund. For the services provided by the administrator under the Administration Agreement, the Fund pays the administrator an asset-based fee calculated on the Fund’s average daily Managed Assets. This fee is calculated daily and paid monthly.
	From April 11, 2022 through May 31, 2022, the Fund incurred administration fees totaling $18 which are included in the Statement of Operations within the line item “Administration and accounting fees.”
E.	Trustees’ Fees
	For the period ended May 31, 2022, the Fund incurred Trustees’ fees totaling $23 which are included in the Statement of Operations within the line item “Trustees’ fees and expenses”.
F.	Investments in Affiliates
	The Fund is permitted to purchase assets from or sell assets to certain related affiliates under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of assets by the Fund from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers comply with Rule 17a-7 under the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. During the period ended May 31, 2022, the Fund did not engage in transactions pursuant to Rule 17a-7 under the 1940 Act.

Note 5. Purchases and Sales of Securities

($ reported in thousands)

Purchases and sales of securities (excluding short-term securities) during the period ended May 31, 2022, were as follows:

Purchases		Sales
$21,105		$30,080

There were no purchases or sales of long-term U.S. Government and agency securities during the period ended May 31, 2022.

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May 31, 2022

High-yield/high-risk securities typically entail greater price volatility and/or principal and interest rate risk. There is a greater chance that an issuer will not be able to make principal and interest payments on time. Analysis of the creditworthiness of issuers of high-yield/high-risk securities may be complex, and as a result, it may be more difficult for the Adviser and/or subadviser to accurately predict risk.

The Fund leverages its portfolio through entering into reverse repurchase agreements or the issuance of debt securities. While leverage presents opportunities for increasing the Fund’s total return, it also has the effect of potentially increasing losses. Accordingly, any event which adversely affects the value of an investment held by the Fund would be magnified to the extent the Fund is leveraged.

Note 8. Borrowings

($ reported in thousands)

The Fund may borrow from banks and other financial institutions and may also borrow additional funds by entering into reverse repurchase agreements or the issuance of debt securities (collectively, “Borrowings”) in an amount that does not exceed 33 1/3% of the Fund’s Managed Assets (defined in Note 4) immediately after such transactions. It is possible that following such Borrowings, the assets of the Fund will decline due to market conditions such that this 33 1/3% limit will be exceeded. In that case, the leverage risk to Common Shareholders will increase.

In a reverse repurchase agreement, the Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. The Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by the Fund to counterparties are reflected as a liability on the Statement of Assets and Liabilities. Interest payments made by the Fund to counterparties are recorded as a component of interest expense on the Statement of Operations. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. The Fund will segregate assets determined to be liquid to cover its obligations under reverse repurchase agreements. The segregated assets are found on the Fund’s Schedule of Investments as full or partially pledge securities. The total amount of securities pledged at May 31, 2022 was $46,589. As all agreements can be terminated by either party on demand, face value approximates fair value at May 31, 2022. This fair value is based on Level 2 inputs under the three-tier fair valuation hierarchy described in Note 1. For the period ended May 31, 2022, the average amount of reverse repurchase agreements outstanding was $44,136, at a weighted average interest rate of 1.04%.

41

VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued)

May 31, 2022

temporary financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered reference rates as of the end of 2021. 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.

Note 14. Subsequent Events

Management has evaluated the impact of all subsequent events on the Fund through the date the financial statements were available for issuance, and has determined that the following is the only subsequent event requiring recognition or disclosure in these financial statements:

Effective July 1, 2022, Stone Harbor Investment Partners LLC merged with and into Virtus Fixed Income Advisers, LLC (“VFIA”), a wholly-owned subsidiary of Virtus. The investment professionals previously with Stone Harbor Investment Partners LLC, now operate in the Stone Harbor Investment Partners division of VFIA. The subadvisory agreement for the Fund was transferred to, and assumed by, VFIA with no other changes.

43

VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

Dividend Reinvestment Plan (Unaudited)

Unless the registered owner of Common Shares elects to receive cash by contacting Computershare (the “Plan Administrator”), all dividends declared on Common Shares will be automatically reinvested by the Plan Administrator for shareholders in the Fund’s Automatic Dividend Reinvestment Plan (the “Plan”), in additional Common Shares. Common Shareholders who elect not to participate in the Plan will receive all dividends and other distributions in cash paid by check mailed directly to the shareholder of record (or, if the Common Shares are held in street or other nominee name, then to such nominee) by the Plan Administrator as dividend disbursing agent. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Such notice will be effective with respect to a particular dividend or other distribution (together, a “Dividend”). Some brokers may automatically elect to receive cash on behalf of Common Shareholders and may re-invest that cash in additional Common Shares, which may result in a higher cost to such shareholders as compared to shareholders who participate in the Plan.

The Plan Administrator will open an account for each Common Shareholder under the Plan in the same name in which such Common Shareholder’s Common Shares are registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Administrator for the participants’ accounts, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the NYSE or elsewhere. If, on the payment date for any Dividend, the closing market price plus estimated brokerage commissions per Common Share is equal to or greater than the NAV per Common Share, the Plan Administrator will invest the Dividend amount in Newly Issued Common Shares on behalf of the participants. The number of Newly Issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market value plus estimated brokerage commissions, the Plan Administrator will invest the Dividend amount in Common Shares acquired on behalf of the participants in Open-Market Purchases.

In the event of a market discount on the payment date for any Dividend, the Plan Administrator will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in Common Shares acquired in Open-Market Purchases. It is contemplated that the Fund will pay monthly income Dividends. If, before the Plan Administrator has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Administrator may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Administrator is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period,

45

VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

Dividend Reivestment Plan

(Unaudited) (Continued)

the Plan Administrator may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share, the dollar amount of the Dividend will be divided by 95% of the market price on the payment date for purposes of determining the number of shares issuable under the Plan.

The Plan Administrator maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Administrator on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Administrator will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants.

In the case of Common Shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Administrator will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan.

There will be no brokerage charges with respect to Common Shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such Dividends. Participants that request a sale of Common Shares through the Plan Administrator are subject to brokerage commissions.

The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants with regard to purchases in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants.

All correspondence or questions concerning the Plan should be directed to the Plan Administrator at 1-866-270-7788.

46

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited)

Review Process

Prior to the public announcement of the anticipated acquisition of Stone Harbor Investment Partners LP (“Stone Harbor”), the Fund’s former investment adviser, by Virtus Investment Partners, Inc. (“Virtus”)(such acquisition, the “Acquisition”), representatives of Stone Harbor and Virtus discussed the Acquisition and its anticipated impact on the Fund with the trustees who were not “interested persons” (within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”)) of the Fund or of VAIA (the “Independent Trustees”) of the Fund and its independent legal counsel. The Independent Trustees were advised that the Acquisition, if completed, would constitute a change of control under the 1940 Act that would result in the termination of the Fund’s advisory agreement with Stone Harbor. The Independent Trustees also were advised that, following the Acquisition, it was proposed that the Fund enter into an investment advisory agreement with Virtus Alternative Investment Advisers, Inc. (“VAIA”)(the “Proposed Investment Advisory Agreement”) and a subadvisory agreement among the Fund, VAIA and Stone Harbor (or the successor to Stone Harbor in a restructuring resulting from the Acquisition)(the “Proposed Subadvisory Agreement” and collectively with the Proposed Investment Advisory Agreement, the “Proposed Agreements”).

The 1940 Act requires that the Board request and evaluate, and that VAIA and Stone Harbor furnish, such information as may reasonably be necessary to evaluate the terms of the Proposed Agreements. The Independent Trustees began their formal review process on June 4, 2021, by preparing an extensive information request letter (the “Request for Information”), which sought a wide range of information the Independent Trustees believed would be necessary to evaluate the Acquisition and its potential implications for the Fund and its shareholders, VAIA, Stone Harbor and the terms of the Proposed Agreements. The Independent Trustees were assisted in preparing the Request for Information by their independent legal counsel.

Virtus provided its responses to the Request for Information in advance of the board meeting held on July 27, 2021 (the “Regular Meeting”). At the Regular Meeting, the Independent Trustees discussed the Proposed Agreements, the proxy statement, and other materials related to those items supplied by Virtus, along with information supplied by Stone Harbor and Virtus related to the Acquisition. Senior representatives of Virtus attended the Regular Meeting to discuss with the Independent Trustees the Acquisition and its expected implications for the Fund and its shareholders.

At a special Board meeting held on August 3, 2021, the Board, including a majority of the Independent Trustees, approved the Proposed Investment Advisory Agreement between the Fund and VAIA and the Proposed Subadvisory Agreement among the Fund, VAIA and Stone Harbor. At a separate meeting on October 20, 2021, the Board also approved an interim advisory agreement (the “Interim Advisory Agreement” between the Fund and Stone Harbor. Throughout their review process, the Independent Trustees were advised by their counsel and they also discussed their obligations with respect to the entering into of the Proposed Agreements and Interim Advisory Agreement in private sessions with their counsel. Prior to voting, the Independent Trustees received a memorandum from their counsel discussing the legal standards for their consideration of the Proposed Agreements and the Interim Advisory Agreement. The Independent Trustees and the Board, in determining to approve the entering into of the Proposed Agreements and Interim Advisory Agreement, did not identify any

48

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited) (Continued)

particular factor that was all- important or controlling, and each Trustee attributed different weights to the various factors.

Materials Reviewed

During the course of each year, the Board and the Independent Trustees received a wide variety of materials relating to the services provided by Stone Harbor, including, but not limited to, reports on: the Fund’s investment results; portfolio construction; portfolio composition; portfolio trading practices; and other information relating to the nature, extent and quality of services provided by Stone Harbor to the Fund.

In addition, the Board’s evaluation of the Proposed Agreements and Interim Advisory Agreement included consideration of the information provided in response to the Board’s information requests and in meetings with representatives of Virtus and the Virtus Funds as well as, where relevant, information that previously had been provided to the Board in connection with the most recent annual contract renewal of the Fund’s investment advisory agreement with Stone Harbor at a meeting held on April 21, 2021.

In the course of their deliberations regarding the Proposed Agreements and the Interim Advisory Agreement, the Board members considered the following factors, among others: the nature, extent and quality of the services to be provided by VAIA, its affiliates and Stone Harbor, including the personnel who would be providing such services; Virtus’s financial condition; the proposed advisory and sub-advisory fees to be paid to VAIA and Stone Harbor, respectively; the anticipated profitability of the Fund to VAIA and its affiliates; and the direct and indirect benefits, if any, to be derived by VAIA and its affiliates from their relationship with the Fund.

The following summary describes some, but not all, of the factors considered by the Board and the Independent Trustees in evaluating the Proposed Agreements and the Interim Advisory Agreement.

Evaluation of the Proposed Agreements and the Interim Advisory Agreement

In evaluating the approval of the entering into of the Proposed Agreements and the Interim Advisory Agreement, the Board and the Independent Trustees also considered the following matters:

1. Virtus’s and its affiliates’ reputation, experience, financial condition and resources;

2. Virtus is a public company with a demonstrated track record and business model of successfully acquiring and integrating boutique asset managers;

3. Virtus’s compliance resources and commitment to regulatory compliance;

49

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited) (Continued)

4. Virtus’s use of well established service providers to service the Virtus Funds and intention to transition the Fund to those service providers in the ordinary course following the closing of the proposed Acquisition;

5. The expectation that Virtus would bring organizational breadth, depth and additional oversight to the Fund;

6. The expectation that Virtus would bring a well-developed structure, experienced professionals and other resources to provide appropriate levels of oversight of investment processes and performance, and compliance and controls, including financial controls;

7. The expectation that the Acquisition would provide for the continuity of portfolio management for a period of at least three (3) years following the closing of the Acquisition, as Virtus intended to enter into employment contracts with Messrs. Wilby and Craige and several other key individuals;

8. Virtus’s operating model contemplated preserving the investment autonomy of Stone Harbor;

9. Virtus and Stone Harbor had committed to maintaining the nature, quality and extent of services to be provided to the Fund following the closing of the Acquisition;

10. Stone Harbor’s expectation and stated intention to continue to manage the Fund in accordance with the Fund’s current investment objective and principal investment strategies for the foreseeable future; and

11. VAIA’s agreement to maintain the Fund’s current contractual advisory fee rates and to contractually limit the Fund’s expenses for at least two years after the closing of the Acquisition, which would benefit the Fund in the event its assets were to decline in the future or expected expense savings were not to materialize as expected, and Virtus’s stated past practice of continuing to maintain such expense limitation arrangements beyond the expiration of the two-year period.

Nature, extent and quality of the services under the Proposed Agreements and the Interim Advisory Agreement

In considering the nature, extent, and quality of the services to be provided to the Fund by VAIA and Stone Harbor under the Proposed Agreements and the Interim Advisory Agreement, as applicable, the Board and the Independent Trustees took into account information relating to VAIA’s and Stone Harbor’s operations and personnel. The Board and the Independent Trustees considered information provided by Virtus regarding its business and operating structure, scale of operation, leadership and reputation, distribution capabilities, and financial condition. The Board and the Independent Trustees considered the expected impact, if any, of the Acquisition on the operations, organization and personnel of Stone Harbor, and that Virtus and Stone Harbor had advised the Board and Independent Trustees that, following the closing of the Acquisition, there was not expected to be any diminution in the nature, quality and extent of services provided to the Fund and its shareholders. The Board and the Independent Trustees considered the investment strategies Stone Harbor used in managing the Fund and the performance of the Fund under Stone Harbor’s management. The Board and the Independent Trustees noted that the Fund’s current portfolio managers were expected to continue to be responsible for the day-to-day portfolio management of the Fund after the closing of the Acquisition. In this regard, the Board and the Independent Trustees took into

50

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited) (Continued)

account that Virtus intended to enter into employment contracts with Peter Wilby, James Craige and several other key individuals which would become effective following the closing of the Acquisition and would have a term of at least three (3) years. The Board and the Independent Trustees also took into account, as applicable, the benefits from the resources that VAIA and Virtus Fund Services, LLC (“VFS”) would bring to Stone Harbor and the Fund, as well as the benefits to Stone Harbor and the Fund of being part of a larger combined organization with greater financial resources. The Board and the Independent Trustees also considered information regarding the financial condition of Virtus, its experience as a fund sponsor and manager, strong client service capabilities, and relationships in the asset management industry.

In considering the management style and investment strategies that Stone Harbor would continue to use in managing the Fund, the Board and the Independent Trustees took into consideration certain comparative performance information for the Fund that was received in connection with the Fund’s most recent annual contract renewal, which had occurred on April 21, 2021. The Board and the Independent Trustees took into account that it was not anticipated that there would be any changes to the Fund’s investment objectives or principal investment strategies as a result of the Acquisition. Given that the Fund’s portfolio managers were expected to continue to be responsible for the day-to-day portfolio management of the Fund after the closing of the Acquisition and that no changes to the Fund’s investment objectives or principal investment strategies were anticipated as a result of the Acquisition, the Board determined that it was appropriate to consider certain comparative performance information that the Board had received in connection with the Fund’s most recent annual contract renewal in evaluating the quality of services to be provided to the Fund and its shareholders after the closing of the Acquisition. The Board and Independent Trustees concluded that the Fund’s performance supported approval of the entering into of the Proposed Agreement and the Interim Advisory Agreement. The Board and the Independent Trustees considered the oversight capabilities and resources that VAIA would bring to the portfolio management of the Fund.

Based on their review of the materials provided and the assurances they received from Virtus and Stone Harbor, the Independent Trustees determined that the Acquisition was not expected to affect adversely the nature, extent and quality of services provided to the Fund and the Acquisition was not expected to have an adverse effect on, and, indeed should reasonably be expected to enhance, the ability of Stone Harbor to continue managing the Fund. The Board and the Independent Trustees concluded that they were satisfied with the nature, extent and quality of services to be provided to the Fund by VAIA and Stone Harbor under the Proposed Investment Advisory Agreement and the Interim Advisory Agreement, as applicable.

Proposed Advisory Fees, Subadvisory Fees and Expenses

In considering the Fund’s proposed advisory and subadvisory fees and estimated net expenses, the Board and the Independent Trustees considered certain comparative fee and expense data that had been received in connection with the Fund’s most recent annual contract renewal. The Board and the Independent Trustees also considered pro forma information regarding the Fund’s fees and expenses following the closing of the Acquisition. The Board and the Independent Trustees also took into account that no changes in the Fund’s advisory fees were being proposed in connection with the Acquisition and that Stone Harbor’s subadvisory fees would be paid out of the advisory fees. The Board and the Independent Trustees also took into account that VAIA had agreed to contractually limit the Fund’s

51

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited) (Continued)

expenses for at least two years following the closing of the Acquisition and that Virtus had stated that its past practice had been to continue to maintain such expense limitation arrangements beyond the expiration of the two-year period. Based upon the foregoing, the Board and the Independent Trustees concluded that the proposed advisory and subadvisory fees were reasonable in view of the quality of services to be received by the Fund from VAIA and Stone Harbor, respectively.

Anticipated Profitability and Possible Economies of Scale

Anticipated Profitability — In reviewing the anticipated profitability of the Fund to VAIA and its affiliates, the Board and the Independent Trustees considered the fact that an affiliate of VAIA would be providing administrative services to the Fund for which it would receive compensation. In this regard, Virtus provided an analysis of the Fund’s current net expenses and the Fund’s pro forma net expenses, which reflected the compensation to be received by VAIA and its affiliate for their provision of services to the Fund following the closing of the Acquisition. The Board and the Independent Trustees noted that the information provided by Virtus indicated that the Fund’s total operating expenses were expected to decrease from those in the period preceding the Acquisition, and that in the event that such savings did not occur, VAIA had agreed to contractually limit the Fund’s expenses for at least two years following the closing of the Acquisition, so that the actual operating expenses attributable to the common shares of the Fund (excluding investment advisory fees paid to VAIA, interest, any other fees or expenses relating to financial leverage, preferred shares (such as dividends on preferred shares, auction agent fees and commissions and rating agency fees) or borrowing (such as interest, commitment, amendment and renewal expenses on credit or redemption facilities), taxes, extraordinary, unusual or infrequently occurring expenses (such as litigation), costs related to share offerings, brokerage commissions, expenses incurred in connection with any merger or reorganization, underlying fund expenses and dividend expenses, if any (each expressed as a percentage of average daily net assets attributable to common shares), after any waiver, reduction or reimbursement by VAIA or its affiliates) would be no higher than they were in the period preceding the Acquisition. The Board and the Independent Trustees also took into account financial information regarding Virtus and its affiliates with respect to its financial wherewithal to provide services to the Fund. The Board and the Independent Trustees also considered that Virtus and its affiliates would likely derive benefits in the form of increased assets under management and the expansion of the Virtus Fund’s lineup from their relationship with the Fund. Because VAIA would pay Stone Harbor’s subadvisory fees out of its advisory fees, the anticipated profitability of the Fund to Stone Harbor was not considered in the Board’s and the Independent Trustees’ deliberations concerning the entering into of the Proposed Subadvisory Agreement.

Economies of Scale — The Board and the Independent Trustees reviewed the extent to which VAIA might realize economies of scale in managing the Fund. The Board and Independent Trustees considered the effect of the Fund’s size on its performance and expenses. The Board and the Independent Trustees took into account management’s discussion of the Fund’s estimated expenses following the closing of the Acquisition, noting that the expenses of the Fund were not expected to increase for at least two years following the closing of the Acquisition. The Independent Trustees concluded that those measures were reasonably designed to result in the sharing of economies of scale realized by VAIA, if any, with the Fund and its shareholders. Because VAIA would pay Stone Harbor’s subadvisory fees out of its advisory fees, the Board and the Independent Trustees did not consider the potential

52

Board’s Consideration of the Proposed Investment Advisory

Agreement and Proposed Subadvisory Agreement(Unaudited) (Continued)

economies of scale from Stone Harbor’s management of the Fund in the Board’s and the Independent Trustees’ deliberations concerning the entering into of the Proposed Subadvisory Agreement.

Conclusions

Based on their review, including their consideration of each of the factors referred to above, the Board and the Independent Trustees concluded that the terms of the Proposed Agreements and Interim Advisory Agreement, including the fees payable to VAIA and Stone Harbor, as applicable, were fair and reasonable to the Fund and its shareholders given the scope and quality of the services to be provided to the Fund and such other considerations as the Independent Trustees believed relevant in the exercise of their reasonable business judgment and that the entering into of the Proposed Agreements and the Interim Advisory Agreement was in the best interests of the Fund and its shareholders. Accordingly, the Board and the Independent Trustees unanimously approved the entering into of the Proposed Agreements and the Interim Advisory Agreement and recommended that the Fund’s shareholders approve the Proposed Agreements.

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VIRTUS STONE HARBOR EMERGING MARKETS INCOME FUND

101 Munson Street

Greenfield, MA 01301-9668

Important Notice to Shareholders
The Securities and Exchange Commission has modified mailing regulations for semiannual and annual shareholder fund reports to allow mutual fund companies to send a single copy of these reports to shareholders who share the same mailing address. If you would like additional copies, please call Mutual Fund Services at 1-866-270-7788.

c/o Computershare Investor Services

P.O. Box 505005

Louisville, KY 40233-5005

For more information about
Virtus Closed-End Funds, please
contact us at 1-866-270-7788
or closedendfunds@virtus.com
or visit Virtus.com.