Company: NCZ-PA
Filing Date: 2025-04-11
Form Type: N-CSR
Source: 0001193125-25-079060
Chunk: 12

Company: Virtus Convertible & Income Fund II
Filing Date: 2025-04-11
Form: N-CSR
Chunk 12
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ended January 31, 2025?

Risk assets advanced during the reporting
period, with the convertible securities and high yield bond markets finishing higher for the 12 months ended January 31, 2025. The ICE BofA U.S. Convertibles Index returned 15.43% and the ICE BofA U.S. High Yield Index returned 9.67%.

Convertible securities were positively
impacted by underlying stock price strength and credit spread tightening. Spread refers to the additional yield over the yield of a risk-free government bond. Sector performance was mostly positive, and primary market activity increased.

Regarding high yield bonds, industry gains
were also widespread. Lower quality bonds outperformed higher quality bonds, new issuance was strong, and the trailing 12-month default rate remained low.

Against this backdrop, corporate earnings
results were generally better than expected, with most companies beating top- and bottom-line forecasts. The U.S. economy expanded, inflation continued to normalize, the unemployment rate remained low, the manufacturing sector began to stabilize,
and the U.S. Federal Reserve (the “Fed”) cut interest rates by a total of 1.00% during the 12-month period.

What factors affected the Fund’s performance during its
fiscal year?

For the fiscal year ended
January 31, 2025, the Fund’s net asset value (“NAV”) returned 19.83%, while its market price returned 27.69%. For the same period, the Fund’s composite benchmark, which consists of 60% ICE BofA U.S. Convertibles Index
(representing convertible securities) and 40% ICE BofA U.S. High Yield Index (representing high yield bonds), returned 13.17%. The underlying indexes returned 15.43% for convertible securities and 9.67% for high yield bonds.

The Fund delivered consistent income and a
positive total return for the 12-month period. The portfolio benefited from strength across risk assets including convertible securities and high yield bonds.

Among convertible securities, most sectors
finished higher, led by technology, financials, and consumer discretionary. Software and semiconductor positioning was the primary source of the Fund’s strength in technology. Financials were aided by gains in a health care real estate
investment trust (“REIT”), an alternative asset manager, and a consumer finance issuer. Cruise line exposure was the largest driver of performance in consumer discretionary, with additional gains from issues in e-commerce and
entertainment services. Conversely, two sectors—