Company: NCZ-PA
Filing Date: 2025-04-11
Form Type: N-CSR
Source: 0001193125-25-079060
Chunk: 5

Company: Virtus Convertible & Income Fund II
Filing Date: 2025-04-11
Form: N-CSR
Chunk 5
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 the U.S. elections. At a sector
level, artificial intelligence (“AI”)-related companies in the communication services and information technology sectors outperformed, with consumer discretionary and financials stocks also trading higher. In contrast, materials and
health care were the weakest sectors in the MSCI All Country World Index (net).

It was a choppy period for U.S. fixed income.
In April of 2024, the yield on the 10-year U.S. Treasury bond reached a six-month high of 4.7% as persistent inflation caused investors to rein in hopes for multiple rate cuts in 2024. However, in late summer, signs of a weakening labor market
sparked fears of a potential recession, which caused 10-year Treasury yields to slide to a year-to-date low of 3.6% in September. Yields subsequently rose again as the Trump administration’s victory raised fears that higher tariffs could
reignite inflation and tax cuts would further swell the fiscal deficit.

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

For the 12 months ended
January 31, 2025, the Fund’s net asset value (“NAV”) returned 23.83%, while its market price returned 45.60%. For the same period, the Fund’s composite benchmark, which consists of 50% MSCI All Country World Index (net)
(representing equities) and 50% ICE BofA U.S. Convertibles Index (representing convertible securities), returned 18.10%. The underlying indexes returned 20.72% for equities and 15.43% for convertible securities.

The Fund’s equity portfolio was a
strong relative contributor over the period. The information technology, financials, and communication services sectors contributed the most to performance on an absolute basis. On balance, the energy sector detracted from returns.

Convertible securities were positively
impacted by credit spread tightening and rising stock prices. Spread refers to the additional yield over the yield of a risk-free government bond. Within the Fund’s convertible securities allocation, the information technology, communication
services, and consumer discretionary sectors contributed the most to performance. Conversely, the Fund’s health care and industrials holdings detracted from performance.

With respect to credit, the Fund’s
allocation to high yield corporate bonds contributed to returns. Information technology, industrials, and consumer discretionary issues contributed to performance. On balance, the consumer staples sector was the only detractor during the 12-month
period.

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